### IN THE COURT OF APPEALS OF TENNESSEE AT KNOXVILLE
GERALD LARGEN v. CRA CKER BARREL OLD COUNTRY STORE, INC.
Direct Appeal from the Circuit Court for Roane County No. 11476 Hon. Russell Simmons, Jr., Judge

No. E1999-01006-COA-R3-CV - Decided April 13, 2000

This is a suit by Seller agains t Buyer forthe Buyer’s termi nation of the part

ies’ contract for the sale of real property. Appellee Cracker Barrel Old Country S tore, Inc. (“ Buyer”) entered into a contract to

purchase real p

roperty from App

ellant G eral d Largen (“Seller”) but terminatedthat contract three weeks later, after Buyer decided that the premises were unsatisfactory for its intended use. Seller fileda “Complaint for Declaratory Judgment,” later amended to allege that Buyer had breached the contract, for which Seller s ou ght damages of $500,000. Buyer answered that the termination of

the contract and return of its earnest money deposit were done in accordance withthe terms of the contract which provided certain conditions precedent to the sale. The T r ial Courtfound that

Buyer had breached its covenant of good faith and fair dealing and awarded Seller $5,000 as liquidated damages as provided for in t he contract. Because we find the evidence preponderates against the Trial Court’s fin ding that Buyer breached the contract, we reverse the judgment of the Tri

al Court and dismiss Se

ller’s Complaint. Tenn. R. App. P. 3; Judgm ent of the Circuit

Court is Reverse

d and the case is Rem

anded.

S WINEY , J., delivered the opinion of the court, in which G ODDARD , P.J, and S USANO , J., joined. Gerald Largen,

Kingston, Tenness

ee, Pro Se John D. Agee, Kingston, Tennessee, for the Appellee, Cracker Barrel Old Country Store, Inc.


### OPINION
Background
A realtor contacted Seller in July or August 1996 and asked him whether he would be willing to sell a 2.5 acre tract of land at the intersection of U.S. Highw ay 27 and I nterstate Highway 40 in Roane County

. The realtor then arranged a meeting between Seller and B uyer’s representative, Tom Reddy, on October 9, 1996 . Buyer brought a s ales contra ct to the me eting. Seller, an attorney licensed in Tennessee for over forty ye ars, reviewed the contract and advised Buyer that he could not sign it unless some changes were made. Buyer agreed to make those changes. On Oc tober 2 4, 1996, the parties met again and Buyer delivered to Seller the proposed

### -2-

final draft of the contract. Seller studied the contract and signed it in Buyer’s presenc e. Reddy sent the signed contract to company vice-president, Donald Cravitts, who signed it on behalf of Buyer
on October 30, 1996. We reproduce two paragraphs of the contract which a

re at issue in this a

ppeal:

4. Earnest Money. Purchaser shall d eposit with Chicag

o Title Insurance Company, as escr

ow agent, Five thousand and no/100 Dollars ($5 ,00 0.0 0), as ea rnes t mo ney, within ten (10) days after the last execution of this Ag

reement, to

be held in escrow

agent’s intere

st bearing trust account

and to be credite

d against the purchase price at closing (said earnest

money, and a

ny and all int

erest accrued thereon, hereinafter

collectively called the “Deposit”). Pur ch aser shall deposi

t the balance of the purchas e price in escrow with said escrow agent within ten (10 days) after the title has been approved b

y Purchase

r, all contingenc ie s of this Agreement have been met, and a deed as aforesaid has been d eliv ered to the escrow agent. If Purchaser de faults hereunder and fails to cure said default within thirt y (30 ) days after receipt of written notice therefor from Seller, th en, upon demandof Seller, said De posit shall be forf

eited as liquid

ate d dama ges and this Agreement shall become null and void. It i s specifically

agreed that

Seller’s sole remedy in the event of a default by Purchaser under this Agreement shall be limited solely to retention of the Deposit as l

iqu idated damage

s, and Seller waiv

es any and a

ll other damages and

causes of action which may have arisen pursuant to law, includ ing without limitati on, any rig

ht to specific performance, or under any other terms of this Ag reeme nt. If this Agreement

is terminated for

any reason other than Purchaser’s default, the Deposit, together with any other sumsand/or documents deposited with the escrow agent by Purchaser, shall be returned to the Purchaser.

* * *

6. Conditions Precedent: Selle r he reby acknowledges that Purchaser would be unable to u

se the Pr emises for purposes other than a Cracker Barrel Old Country Store® constructed acc

ording to the Purchaser’s plans and specifications, together with curb cuts and off-street parking and signage accep tabl e to Purchaser, including withoutlimitati on, Purchas er’s identi fication p ole sign, bu ilding sign and directional/ent

r ance-exit signs (collectively, “Purchaser’s Intended Use”). Therefore, this purchas e and sale is subject to the satisfaction of th

e following cond

itions and covena

nts:

* * *

### -3- D. Purchaser obtaining a . . . certified s urvey satis

factory to Purchaser, in its sole opinion . . . not disclosing any condition rendering the Premises unusable, in Purchaser’s so le opinion, for Purchaser’s Intended Use.

E. Purchaser o btaining, a t Purchaser ’s expense , boring, percolation and o ther soil tests (“Soil Tests”), as well as
env ironmental, structu ral and physica l inspections/ass

essments (“Physical Inspect ions”), and feas ibi lit y, demographic, traffic pattern, labor pool and other site assessment studi es (“Site Studies”) showing that the Premises is satisfactory, in Purchaser’s sole judgment, for Purchaser’s Intended Use.

* * * F. Purchaser obtaining ingress an d egress to public thoroughfares adequate, in Purchaser’s so le opinion,

fo r Purchaser’ s I ntended Use under terms and conditions acceptable to Purchaser, in its sole discreti on. (Emphasis added.)

In the event the

conditions of this Agreement have not been satisfied
or complied with within one hundredeig hty (180) days after the Effective Date (ninety

(90) days w

ith respect to senior management approval), or in the event tha t the Soil Tests, Phy

sical Inspec

tions, Site Studies, survey

s, Governmental App

rovals, permits, approval of Purchaser’s senior management and/or other approvals have not been obtained within said

one hundred eighty (180) day period (ninety (90) days for senior m ana gement approva l), or do not meet wi th Purchaser’s approval or

di sclose matters which would make the Premises unsuitable for the purposes stated he rein, anything containedherein to

the contrary

notwithstanding, Purchaser may, at its option and at anytime after the aforementioned one hundred eighty (180) day p

eriod (ninety

(90) day pe

riod for se

n ior management

ap prov al), terminate this Agreement, and the money and documents

deposited in escr

ow shall be returned to the pa rty depositing same.

On November 20, 1996, three weeks after the contract was signed, Buyer sent a letter to Seller which we reproduce:

Dear Mr. Largen:

We regret to inform

you that in the

course of conducting the various1 The origina l contra ct provided $278,000 purchase price , with $27,800 of that being for

real estate broker’s commission and $250,000 being Seller’s share. The contract was for two and


### -4- conditions precedent set

forth in Article 6E of the RealEstate Sales Contract dated October

30, 1996, Cracker

Barrel has determined that the Premises is unsatisf actory for

Purchaser’s I

nte nd ed Use (as definedin the Contract). Ther efore, this lette

r shall constitute official notice to you

under Article 6 of the Contract that Cracker Barrel has elected to terminate the Co

ntract and obtain

the return of

its earnest money depos

it.
By carb on c opy h ereo f to Chi cago Tit le In sur ance Com pan y, we are hereby requesting the return of

t he earnest money Deposit for the transaction.

We regret that this action is necessary and hope that future transactions will b

e more fruitful.

Sin cere ly,

S. James Torcivia Director, Real E

state

Seller te stified a t tr ial tha t he wen t ov er t he p rop ose d co ntr act wit h To m Re ddy, Buyer’s repr esentat ive, and “had considerable discussion” with Reddy about the contract. They discussed the existence of an easement for ingress and egress on adjacent Shoney ’s property. Seller told Buyer that he

was concerned about provisions in the contract requiring Seller to bear expe

nse of studies , su rvey a nd other things that Seller was unwilling to bear. Buyer ag reed to strike the offending portions o f the con tract. A second draft was delivered to Seller on October 24, 1996, Seller studied it and signed it. Buyer signed the contract on October 30, 1996.

That same

day, Seller signed an authorization for Buyer to go on the land for purpose s of “surveying and so on.”
Seller testified that he had no further contact with Buyer until November 24, 1996, when he received

a letter from Buyer say

ing that it had terminated

the contract under the provisions of section six of the contract. Seller then wrote Buyer on Nove mber 26 an d December 17, 1996, asking for “some explana tion” and “furthe

r information.” Co

unsel for Buy

er responded th

at the termination had be

en accomplished i

n accordance w

ith the terms of the

contract.

Se ller testified that he t

hen wrote to Chica

go Title and I

nsurance Co

mpany on January 15, 1997, asking if they were still holding the $5,000 deposit in escrow. The title company replied that the deposit had been refunded to Buyer. Seller then fi led s uit for declaratory judgment, later amended to allege brea

ch of contract “

as a result of the

production of doc

uments f rom the defendant.” Seller testified that he had calculated his damages as $490,200. 1one-half

acres at $100,000 per acre. It was Seller’s opinion as owner of the land that, at the time of trial, the best price he could receive on a sale of the pr

operty was $20,000 per acre; therefore he had $200,200 in direct damages as a re s ult of Buyer’s breach of the contract. He a lso testified that he
owns another 150 acres around the property at issue, all of whi

ch would have inc

reased in value i

f
a restaurant were built adjoiningit. At least 25 of those acres would have increased in value by at least $10,000 per acre by the buildi ng of a restaurant. Therefore, Seller claimed an additional $250,000 in consequential damages. Interest at ten percent for two years would add $40,000, for a total of $490,200 damag

es. We express no opin

ion regarding

the validity o

f seller’s appro

ach to the calculation of da

mages. 

### -5- On cross-exami

nation, Seller admitted that an adjacent restaurant, Shoney’s, had placed a sign in the easement appurtenant to his property. He also admitted that he learne d during pre-tr ial discovery t

hat Buyer had performed so

me investigation

s to determine the f

itness of th e property for its intended purpose before terminating the contract. Those investigations included the hiring of an outside engineering firm to estimate the cost of the project and to prepare a preliminary plot plan showing the contemplated building, parking and signage.

Seller admitted that he also learned during discovery that Buyer performed

its own internal site development c ost est imates prior to ter

minating the cont

ract and that the

in-house estimator had op ined that site development costs would be $600,000 higher than the outside engin eering firm had estimate d. The differen

ce in the two estima

tes was due to th

e in-hous e estimator adding $600,000 for the cost of removing rock from the property. The presence or absence of rock on the property is the major factual dispute

between the parties. Seller insisted that Buyer’s cost estimate was wron

g because ther

e was no rock on hi

s property,

and si nce there was no rock, Buyer was incorrect in

claiming that therewould be $600,000 of additional costs for removing rock. Seller contends that without that $600,000 addition to the cost estimate, the project would have been economically

feasible and the contract

would not have been terminated. Seller complains that Buyer failedto do core dr illing to assess the rock situation, and that if Buyer had done the proper investigation, the contract would not have been terminated. (“Why, on five differe nt sites on that
sameridge, that have

been severely excavated both by TVA and the Department of Transportation, no one has ever found rock there.”)

Mr. Tom Red dy, Real Estate Manager for Cracker Barrel Old Country Store, testified that when he presented the contract to Seller, he and Seller went over the contract for an hour or two. After the contract was signed, Reddy undertook the company’s customary steps in eval uating t he fitness of the proposed site. He sent documents Seller had given him about the Shoney’s easement to Buyer’s counsel in New Orleans. The easeme nt situation caused him concern about ingress

and egress to the property. Reddy also requested a survey and engineering studies and ordered demographic

reports to estimate the overall potential for sales at that loca

tion. After he obta

ined this information and sent it to headquarters, Cracker Barrel terminated the cont ract because the information obtained showed th at i t would not be economically feasible to develop the site. The decision to terminate

the contract was made during a conference call between Reddy and senior staff in the home office, during which they discussed the site survey and all the other engineering data.

### -6-

Reddy opined the

decision was based on “the topography and the cut” i.e., the c ost of cutting into the hillside, considering the cost of removal of any rock found there. He does not think anyone from Cracker Barr

el ever discusse

d the rock proble

m with Seller befor

e terminating the

contract.

Mr. Mike Freeman testified that he is an Engineer S urveyor and owns Freeman EngineeringSurveying. On October 18 and 24, 1996, he received faxed re quests from Cracker BarrelOld Country Store to conduct a preliminary sur vey of two and one-half acres shown on a faxed tax map of R oan e Co unt y. He performed a boundary topographical surve y and provided Buyer withthe results. Before doing the survey,

he searched the

Roane County

Courthouse, the Pro

perty Assessor’s Offic e and the Register of Deeds Office. He knew about the unrecorded judgme nt esta blish ing Seller’s easement over Shoney’s property because he had also surveyed the adjacent property where Shoney’s is located, and he had access to that survey

. However, in retrospect, he
now realizes that he ma

de an error in his survey whi ch, when corrected, would have moved the southwestern boundary line 132 feet closer to the hillside. That would mean there actually is less flat land and more hillside in

Seller’s property than he told Buye rs. His fee for service to Buyer was $2,500, which Buyer paid.

Mr. Ted Tillman, Director of Construction for Cracker Barrel, t estified that he has “personally

built thirty [stores] for the company [and] supervised over a hundred.” At the time that Buyer was involved with contract negotiations with this Seller, Mr. Tillman was Project Manager. His duties consisted of:

Whatwe would

call due diligen

ce, meaning, I

would go visit

the site, make an analysis , an estimate of wh at I perceiv

ed it w ould co st to develop the site. I would do what we call a D.C.E., D evelopmen t Cost Estimate, and present that to Real Estate.

Mr. Tillman testified that he met with the real esta

te agent,discussed the site with her, received a plat to add to his folder, and visited the site. He assessed the geological conditions of the proposedsite to est imate the ex tent of gradi ng, excavation and fill that would be required. He saw that the adjacent property, Shoney’ s, had some rock outcropping coming out of the side of t h e mountain and “ther

e was lots of excav

ation, which y

ou would call ‘cut

’ into the side of the hill. . .
so I concluded t

hat most likely we wo

uld have some

rock excavation on the property.” He prepared
a development

cost worksheet,

a one-page estimate of preliminary figur es, which originally did not include excavation of roc

k. That workshee

t estimated that it w

ould cost Buyer 2.651 million dollars to develop Seller’s property. He then estimated that the expense of excavating rock would ra ise the cost by $577,000.

That total, 3.2 millio

n dollars, exceeds

the maximum Cracker

Barrel ty pically spends on development of a site. Mr. Tillman also testified that Cracker Barrel ultimately bought nearby property a

nd built the restaurant,

and that site prove

d to have rock whic

h required remov

al.

On cross-examination

, Mr. Tillman testif

ied that his ex perience at estimating excavation costs in East Tennessee comes from one Cracker Ba

rrel Restaurant

which was built in

### -7-

Johnson City and the restaurant in Harriman which was built on other property after this contract was terminated. The Johnson City experience “mad

e me think that when

there is a hill in Ea

st Tennessee, there’s a probability

that I’m goin

g to encounter s

ome rock.” His opinion that Selle r’s site would involve rock excavation was also based on:

visual inspection of the surrounding geology in Harriman, Tennessee, and reading countl

ess soil boring re

ports, geotech

nical soil bo ring reports of other projects in the , we call it the Appalachian Range of Eastern Tennessee, West Virginia, Pennsylvania, Northern Georg ia, and North Carolina.

After Seller’s site was rejected, Buyer purchased a nearby site and built its restaurant, with a total cost for that project of approximately $2.7 million.

Mr. Jim Torciva, Director of Real Estate for Cracker

Barrel, testified that the decision to terminate Seller

’s contract was m

ade in a confer

ence call which involved himself, “Bill Sopenski, my counterpart in

construction, TedTillman’s supervisor at that time, Don Cravitts, and I think we had Tom Reddy on

conference call . . . .” He said that they decided to terminate the contract under Article 6E of the contrac t because it was n

o longer feasib

le to proceed. Th

e decision was ma

d e basedon their feasibili

ty studies, specifically a cost analysis which showe d the cost to be estimated at 2.6 million dollar

s plus:

the good possibility of an additional five or six hundred thou san d dollars in rock removal, which could put the project at well over three million dollars. That woul d have made it not viabl e to continue. That was the major part of thedecision not to move forward, coupled withthe easement

problem that was discussed earlier, or the potential for an easement problem, the unrecorded judg ment. We knew that the Shoney’s sign was in the eas ement. We also knew that the ir parking was in th

e easement.

Mr. Torciva also test

ified that anothe

r factor in th

e decision was that the demographic study done by Buyer showed that the

project was not

economically feasible in light of the projected sales. When asked about the 132 foot

error in surveying the property , he opined that if that had been known, it would have made the project even less economically feasible. Eve n though the standard contract permits Cracker

Barrel 90 to 180 days to notify sellers that a project will be terminated, his pra ctice is to notify a pr

ospective seller

immediately

upon the company’s making a dec ision to terminate,

so that sellers will not hav

e their property

tied up longer than necessary. For that rea son, they notified Seller three weeks after entering into this contract that the contract was terminated.

On cross-examination

, Torciv a testified that a Cracker Barrel Restaurant was later built on nearby property in Har riman at a cost of $2.6 million. However, that site has encountered
an erosion problem from the top of a hill behind t he restaurant. T

he company

is now regrading the

### -8-

hill and shoring it up. Repairing th at erosion proble

m will probably

result in the overall cost of that project being near $3 million.

The Trial Court fo

und, as pertinent t

o this appeal:

The defendant’s de

cision to terminate was based on two (

2) opinions: (1) the potential site development costs were too high, and (2) there were potential e

asement problems

.
In determini ng t he s ite development costs the defendant sent information to an enginee ring firm cal led Design an d Engineerin g. The engineering

firm and the defendants employees determined that the site development cost would be approximately $2.65 million (Exhibit #20 ). The only r

eason the defen

dant found the site preparationto be excessive is basedon th e recommendation of Ted Tillman.

Ted Tillman has been anemployee of the defendant for five (5) y ears and serves presently as project manager and ha s exper ience in building and project

management. He indicated he only had two (2) undergraduat

e courses in geol

o g y which he did not use. He did not indicate what his duties as project manager are or what

expertise he has gained in this occupation.

The Trial Court then summarized the evidence that Design and Engineering had estima ted the clearing and grading cost at $377,000 to $555,200. Those estimates, which quoted a per cubic yard cost of $9.00, assumed rock excavation. Ted Tillman’s estimate, however, quoted $50 to $75 per cubic yard because of the rock. The Trial Court then stated:

The Court finds from the evidence that Ted Tillman is not an expert in geol ogy or

in the estimating of cost of excavation. There is no objectiv e basis to indicate there was rock nor any estimate of the amount of rock in the proposed site, other than the testimony of Ted Til lman

. The Court finds the testimony of Ted Tillman concerning the cost of

excavation is not credible versus a figure of Nine Dollars ($9.00) per cubic y

ard by an e

ngineerin g f irm who the defendant trusted to do its site evaluation.

The Courtfinds that in good f aith the defendant should have done the geological

testing it was allo

wed to do under th

e contract and determine the cost of excavation in the ar ea before making its decision to terminate

the contract bas

ed on the cost fea

sibility due to excavation of rock.

### -9-

On the issue of the easement, the Trial Court found:

The defendant made no efforts to ca ll the pla intiff or other land owners to determine if there was an actual problem. The defendant didnot show documentation of the law firm’s opi n ion and only testified of a concern or a potential of a n easement problem. The Co urt finds that good faith required that the defendant make a reasonable

effort to establi

sh there was an ac

tual problem befo

re this could be used as a reason for termination.
Every contract imposes upo n each party a duty of good faith and fair dealing in its perform anc e and enforcement. Restatement, 2d con tracts, § 205, 17 Am.Jur.2d Contrac

t § 256.
Generally, in construing contracts, the courts not only lo ok to the language of th e instrument, but mus

t ascertain, if possible, the intention of the parties, and the construction which is reasona ble and fair will prevail. Real Estate M

anagem ent v. Giles, supra. Covington v. Robinson, 723 S.W.2d 643 (Tenn.App. 1986). The Court finds from a reading of the contract, the testimony of the witnesses and the exhibits introduced that th e defendant bre

ached its covenant of good faith a nd fair dealing w ith the plaintiff in terminating the sales contract without making a reasona

ble effort to ascertain the amount of rock on the site and the actual cost of removal of the rock and without determining that there was an actual problem with the easement

instead of a poten

tial problem.

The Court further finds that paragraph 4 of the contract provides for liquidated damage s in the amount of Five Thousand Dollars ($5,000.00) if

Purchaser breached the contract. The Court finds this amount to be the damages to which plai n tiff is entitled under the contract.

Discussion
Seller appeals and raises the following issue:
Whether, under the rules concerning the enforceability of liquidated damages provisions in cont racts, and under facts of this case, the pl aintiff’s recovery of money damages should be limited to th e

### -10- amount stated in the contr

act as li qui dated damages, i.e. Five Thousand Dollars ($5,000.).
In response, Buyer raises the following issue:

Did the Trial Court err in findi ng that the defenda nt breached its covenant of good faith and fair dealing with the plaintiff?

Our review is de novo upon the record of the Trial Court, T. R. A. P. Rule 13(d) . The Trial Court’s findings of fact are c on clusive on appeal unless the evidence in the record preponderates against those find ings. State v. Burns , 6 S.W.3d 453 (Tenn. 1999). The interpretation of a written agreement is a matter of law and not of fact. Therefore, as to matters of law, our scope of review is de novo on the record with no presumption of correctness of the Trial Court’s conclusions of law. Park Place Center Enterprises v. Park Place Mall Associates , 836 S.W. 2d 113, 116 (Tenn. Ct. App. 1992).

Seller argues that he should not be limited to $5,000 a s liquidated damages as specified in the contract be cause (a) the amount of actual damages is easily determined, (b) the liquidated dam ages clause acts as a penalty against the Seller, (c) Buyer withdrew the liquidated dam ages funds from escrow and is therefore estopped from relying on the liquidated damages clause , and (d) Buyer

breached its implied

covenant of good faith and fair dealing and therefore is liable for actual damages.

Buyer argu es that t

he Trial Court erred in finding that it breached the covenant of good faith and fair dealing because that finding was based on obligationsimputed to Buyer by the Tria l Cour t which went beyond the four corners of the contract. Buyer argues this deviation was unwarranted

because the TrialCourt was obligated to interpret and enforce the contract as written, even though it contains harsh terms.

As stated, the Trial Court held that Buyer had breached the covenant of good faith and fair dealing and awarded Seller the liquidated damages provided for in the contract. In this appea l,
we do not reach Seller’s issue of whether he “should be limited to the amount stated in the contract
as liquidated damages” unless our de novo review convinces us that Buyer has breached th

e contract.

The cardinal rule of

interpretation of

contracts is t o ascertain the intention of the parties and to gi ve effect to

that intention consistent with legal principles. I

n construing con

tracts, the words expressing the parties intentions should b e given their usual, natural, and ordinary meani ng. Park Place Center Enterprises v. Park Place Mall Associates , 836 S.W. 2d 113, 116 (Tenn. App. 1992). Seller cites Covington v. Robinson, 723 S.W.2d 643 (Tenn. Ct. App. 1986) for the rulethat “[e]very contract imposes upon each party a duty of good faith and fair dea ling in its

### -11-

performance

and enforcement. R ESTATEMENT , 2 D C ONTRACT S § 205. 17 A M .J UR

. 2 D C ONTRACTS , § 256.” Our Supreme Court discussed the nature of the duty

of good faith in

Wallace v. National Bank of Commerce, 938 S.W.2d 684 (Tenn. 1997):

In Tennessee, the c

ommon law imposes a

du ty of good faith in the perfo rma nce of contracts. This rule has been considered in several recent decisions of the Court of Appeals. The law regarding the good faith performance of contracts was well stated by the C ourt of Appeals in TSC Industr

ies, In c. v. Tomlin, 743 S.W.2d 169, 173 (Tenn. App. 1987):

It is true that there

is implied in

every con

tract a duty of goo d fait h and fair dealing in its performance and enfo rcemen t, and a person is presumed to know the law. See Restatement

( 2d) Contracts, § 205 (1979). What this duty cons

ists of, however, depends upon the in di vidual contract in each case. In construing contracts, cour ts lo ok to the language of the instrumentand to the intention of the parties, and impose a construction which is fair and reasonable.

In Covington v. Robinson, 723 S.W.2d 643, 645-46 ( T enn. App. 1986), w hich was relied upon by the Court of Appeals in TSC Industries, the Court of Appeals held that in determining whether the parties acted

in good faith in the

performance of

a contract,

the court must judge the performance against the intent of the par tie s as dete rm ined by a reasonable and fair construction of the langua ge of the instrument. In

a later decision

, the Court of Appeals held that good faith in performance is measured b y the term s of the contract

. “They [the parties] may by agreement , ho wever, determine the standards by which the performance of obligations are to be measured.” Bank of Crockett v . Cullipher, 752 S.W.2d 84, 91 (Tenn. App. 1988). * * * In this case . . . the la

nguage of the

agreements

clearly sta

tes the terms and reflects the intent of the parties . . . . Performance of a contract according to its terms canno t be characterized as bad faith. [Emphasis added.] * * *

. . . it should be noted that the common law duty of good faith in the performance

of a c ont ract doe s no t ap ply t o t he formation of a contract. S ee Resta tement (Second) of Contracts, § 205 cmt. c (1979). Con seq uen tly, the common law duty of good faith does not

### -12- extend b eyond the agreed upon terms of the contract and the reasonable con

tractual expecta

tions of the partie

s.
Wallace v. National Bank of Commerce, 938 S.W.2d at 686-687 , (Tenn. 1997). Ap plying thes

e standards, for Seller to prov e that Buye

r breached the

contract, Seller

must show that Buyer’s

action in terminating the contract was not in accordance with the contract’s terms. This is particularly true in this case where Buyer is an experienced commercial entity and Seller is an attorney who has been licensed to practice law in this state for over forty y ears. Lookingat the terms of the contract, we fin

d that Buye

r had sole

discre tion to determine whether

its survey of the property disclosed any condition re ndering the Premises unusable:

6. Conditions Precedent.

D. Pu rcha ser obt ain ing . . . a cert ifi ed s urv ey sat isf act ory t o Purchaser, in its sole opinion . . . Not disclosing any condition rendering th e Premises unusable, in Purchaser’s sole opinion, for Purchaser’s Intended Use.

The term s of the contract also gave Buy

er the sole judgm

ent as to wheth

er th e assessment studies showed that the property was satisfactory for its intended use:

6. Conditions Precedent. E. Purchaser obtaining, at Purchaser’s expense, boring, percolation and other soil

tests (“Soil Tests”) as well as environmental, structural and physical ins

pections/a sse ssments (“Physical Inspections”), and feas ibi lit y, demographic, t raffic pattern

, labor pool and oth

er si t e assessment

studies (“Sit

e Studi es”) showing tha t the Premises is sat isf act ory, in Purchaser’s s ol e judgment, for Purchaser’s Intended Use.

The terms of

the contract also gave Buyer the sole discre tion to determine whether, in Buyer’s opinion, the ingress and egress to public thoroug hfares was adequate:

6. Conditions Precedent. F. Purchaser

obtaining ingress and egress to public thoroughfares adequate, in Purchaser’s sole opinion, for Purchaser’s Intended Use under terms and conditi

ons acce ptable to Purchase r, in its sole discretion.
Seller was questio

ned at trial about

whether he rea

d the terms of the c

ontract:
Q: And you had an opportunity to review that, didn’t y ou?

### -13- A: Mr. Agee, I had the opportunity to review everything. I thought I was dealing

with honorable

people , a conclusion which I have

since had to adjust

. Q: Having revi ewed tha t, yo u signed it and agreed to it, didn’t you?

A: I did not revi ew t hat , in part icu lar . I ha d th e op por tun ity t o

. I did e xecute the contract by thinking I wa

s dealing with honorable folks.
MR. AGEE: That’s all, Your Honor.

The Trial Court found that the contract implied an obligation on th e part of Buy

er to determine that the cost estimate of its employee, Ted Tillman, was not as credible as the competing cost estimate of

Design and Engineering Company. We find no such requirement in thi

s contract. The Buyer was authorized to determine whether the property w

as suitable

for its intended purpose, in its sole judgment. The Trial Court ha d no authority

to add that Buy

er’s “sole judgment”

was valid
on lyif the information used in making that judgment was gathered by a n estimator approved by Seller.

The Trial Court found th at “in good fait

h, th e defendant should have done the geological

testing it was allo

wed to do under the

contract and de

termine the cost

of excavation in

the
are a before making

its decision to term

inate the contra

ct based on the cost feasibil ity due t o excavation of rock.” We find no such requirement in this contract. The contract provi des that a condition preced

ent is:

E. Purchaser obtaining, at Purchaser’s expense, boring , percolation a nd other soil tests (“Soil Tests”), as well as environment al, structural and phy sica l inspections/asse

ssme nts (“Physical Inspect ions”), and feasibility, demographic, traffic pattern, labor pool and other site assessment studies (“Site Studies”) s h owing that the Premis es is satisfactory, in Purchaser’s sole judgment, for Purchaser’s Intended Use.

The Contract does not require Buyer to perform speci

fic geological te

sting before it exercises its sole judgment to de termine wheth

er or not the premises are satisfactory for Buyer’s intended use. It is undisputed in the record that Buyer did make an a ssessment of the geological aspectsof this property. It is likewise undisputed from the testimony another factor in B uyer’s decision not to proceed with the purchase was that the demographic study done by Buyer showed the project was not economically feasible in light of the proj ected sal es. Buyer may have been

### -14-

wrong in its assessment and its exercise of its sole judgmen t, but whether Buyer’s decision was accurate or inaccurate is immaterial to the requirements placed on Buyer by the contract.

The Trial Court found that “good faith required that the defendant make a

reasonable effort to establish there was an actual [easement] problem before this could be used as a reason for terminat ion.” We find that Buyer did act in good fait

h in determining tha

t the easement wa

s a problem. The evidence sho ws that Seller was

awarded the ea

sement in an earl

i er lawsui t, but the easement had never

been recorded. Shoney’s had constructed a sign on the easement and was using part of the easement as a parking lot. Buyer testified that in its experience, a competing restaurant
was not easy

to deal with when negotiating issues such as easement rights. Once again, the contract gives Buyer

the “sole discretion” to decide whether ingress and egress is acceptable to Buyer. Buyer exercised that discretion.

We find that Buyer, in terminating this contract, acted within its rights as provided by the terms of the contract. Performance of a contract according to its terms cannot be characterized as bad faith. Wallace v. National Bank of Commerce, 938 S.W.2d at 687, (Tenn. 1997). Accordingly, Seller is not entitled to damages for breach of the impl ied covenant of good faith and fair dealing. The decision of the Trial Court is reversed.

Conclusion

For the reasons her ein sta

ted, the judgment of

the Trial Court is r

eversed and this
cause is remanded to the Trial Court for such further proc e edings as may be required, if any, consistent with thi s Opinion and for collection of costs below. Costs of this appeal are assessed against Gerald Largen.