### IN THE COURT OF APP EALS OF TENNESS EE AT NASH VILLE Ma y 8, 200 2 S es sio n

C A ST LE TO N C A P IT A L C OM P A N Y , L. L. C

. v.

LU C IU S E. BU R C H, III

Appeal f rom the Chancer y Court for Davidson Cou nty No. 98-3860-II Honorable Carol M cCoy, Chancellor

No. M2001- 01597-COA-R 3-CV - F iled April 23, 2004

The Plaintiff filed suit see king to r ecove r a defic iency on a loan executed by the Def endant and anothe r left owing afte r fore closure upon rea l e state. The Def endant had purcha sed a par cel of

rea l estate fr om a company in which he wa s a direc tor, and had assumed responsibility for r epay ment of a loa n secur ed by

that rea l estate. The Defenda nt denied liabili ty , and allege d mutual mist ake a nd neg lige nt misreprese ntation surrounding the loan ag ainst the l ender beca use the loan doc uments he sig ne d c onta ine d lan g ua g e re g ard ingc ro ss- c oll a te ra lizatio n invo lvi nga se pa ra te pa rc e l of re a l e state fo rm e rl y ow ne d by the c omp any in wh ic h the De fe nd ant wa s a dir e c tor , wh ic h re a l e state wa s so ld two day s prior to assumption of the l oan obli g ations by the Def endant. F ollowing a

bench tr ial, the Chance llor g rante d judgme nt for the Plaintiff for $134,127.65 and attorne y s' fee s totaling $7 3, 41 7. 37 , f

or a tot a l ju dg me nt o f $ 20 7, 54 5. 02 . T he De fe nd ant a pp e a le d. We a ff

ir m.
Tenn. R. App . P . 3 Appeal of Right; Judgme nt of th e Chancer y Court Affi rm ed

R O B ERT E. C ORL EW , II I , Sp. J., delivered the opinion of the court, in which B EN H. C AN T RE LL , P. J ., M.S., and W I LL I AM C. K O CH , J R ., J ., joined.

W. Gary Bla ckburn and Mathew R. Z enner , Bla ckburn & McCune, P.C., for the Appellant, L ucius E

. B u r c h
, III

. Charles W. McElroy , Whit e & Reasor, N ashville, Tenne ssee, f or the Appe llee, Castleton Capital Com pa ny , L L C.

OP IN ION

Be fore us is an appea l from the Chanc ery C o u rt fo r Da v i d s on County which g rante d jud g me nt t o th e Pla int if

f a g a ins t th e De fe nd ant i n th e su m of $2 07 ,5 45 .0 2, inc lud ingpr inc ipa l, interest, and othe r fe es in the amount of $134,127.65 an d attorney s' fee s in the amount of $73,417.37.2

De fe nd ant B ur c h w a s a

dir e c tor of Autom oti ve F ra

n c h i s e Cor

po ratio n ( AF C) . In 1 98 6, wh ile the Def endant wa s serving as a dire ctor, AF C entere d into two loan ag ree ments with Metropolitan Fe dera l Savings a

nd L oan Association. One loan fina nced a projec t in Chesapeake , Virg inia, and the oth e r fi na

nc e d a pr oje c t in

Gw inn e tt Co un ty , G e or g ia . E a c h lo an w a s d oc ume nte d b y a se pa rate promissory

note, ea ch of which matured on June 30, 1987. Eac h loan was se cure d by the par cel of

rea l estate for

which the loan w as made , but lang uag e was included withi n eac h deed of trust so that

eac h loan was se cure d by both p i ec es o f prope rty . All loan documents we re e x ecute d by J oseph Docke ry , President of AF C, on behalf of the cor poration.

Whe n th e loa

ns we re no t pa id o n th e or ig ina l du e date , th e c or po ratio n o bta ine d e xten sio ns

. Ev e ntu a lly , A F C f

ound its e lf in a pr e c ari ou s f

ina nc ia l c on dit ion , a

nd in an e ff

or t to a lle viate so me of that financ ial hardship, on De cembe r 27, 1988, AF C sold the Georg ia prope rty t o a compa

ny kn ow n a s T he B e tty

Com pa ny , a sso c ia te d w ithWaf

fl e Ho us e , Inc . f

or $2 90 ,0 00

. Th e loa

n d ir e c tly

secur ed by

the Geor g ia prope rty

in the sum of $267,652.14 was then paid in full from the pr ocee ds of the sale. The rec ord re flec ts that the sum approxi mating $22,000 in e x cess of the amount of the loan sec ured by

the prope rty was derive d from the sale, but w as not a pplied toward the loan on the Virg inia proper

ty . Although the rec ord does not fully explain the di sposition of t hose funds, ther e is an infer ence that the additional money derive d from the sa le was use d to pay the costs associated with the sale of that rea l estate.

Tw o d ay s la

te r, De fe nd ant B ur c h a

nd Mr . D ockery pu rch a se d, a s c o- te na nts , th e Vi rg ini a p ro p er t y from AF C, and by

ag ree ment, assumed that debt. The parties e x ecute d the Assumption Ag ree ment on Dec ember 29, 1988. Subsequently , both Mr. Dockery individually and AF C filed

a c tio ns fo r r e lie f u

nd e r t he Un ite d St a te s B ank

ru ptc y Cod e . M e tr op oli tan F e de ra l w a s p la c e d in

rec eiver ship. The loan assumed by t h e De fenda nt and Mr. Doc kery

was then pur chase d by

an aff iliate of the Plaintiff, then a ssigne d to the Plaintiff. No pay ments were made to the Plaintiff whe n the note mature d on J anuar y 1, 1995. Demand f

or pay ment was subseque ntly

made, but no ac tion was take n to forec lose upon the re al estate until J une, 1997, due to the ex istence of a stay issued by the Fe dera l Ba

nkruptcy Court in the case involving Mr. Docke ry

. Prior to the fore closure, notice was g iven by the P laintiff t o the Defenda nt that the P laintiff claimed sums totaling in excess of $736,000. The sum of $650,000 was derive d from the forec losure sale . The loan be ars inter est in the sum of 8.95 perc ent.

The De fenda

nt asserte d aff

irmative def

enses a sserting unenfor cea bility of his Assumption Ag ree ment based upon the theories of mutual mistake and neg lige nt misre prese ntation. H e alleg ed that be c a us e the As su mpt io n Ag re e me nt c on tin ue d to c on ta in l angua g e surr ound ingthe c ro ssc o l l a t e r a l i z a t i o na g r e e m e n tc o n c e r n i n g t h e G e o r g i a r e a l e s t a t e , w h i c h i nf a c th a d b e e ns o l d t w o d a ys befor e he a ssumed the debt sec ured by the Virg inia proper

ty , there exis ted a mutual mistake.

Our r e vie w of qu e sti on s o f f a c t is de novo upon the re cord, a ccompa nied by a pre sumption of the c or re c tne ss o f the fi nd ing s of the Tr ia l Cour t, unl e ss the pr e po nd e ra

nc e of the e vid e nc e is t o t h e co n t rary

. J

on es v . G arre tt , 9 2 S

. W

. 3 d 8 3 5
, 8 3 8 ( T e n n

. 2 0 0 2 )

. O u r r e v i e w w i t h r e s p e c t to qu e sti on s o f l aw i s de novo without a presumption of corr ectne ss. Rutherford County v. W ilson
,3

121 S.W .3d 591, 595 (Tenn. 2003)

.

Th e Tr ia l Court fo un d that th e re wa s n o mutua l mi sta ke , a nd a ll p e rs on s w ho te sti fi e d, wi th
t h e e x c e p t i o n o f D e f

e n d an t B u r c h
, a c kn o w l e d g e d t h a t t h e y kn e w o f t h e s a l e o f t h e G e o r g i a p r o p e rt y. The Court found that the le nder kne w of the sa le of the pr operty , and Mr. Doc kery acknow ledg ed on behalf of himself and A FC, that he kne w of t h e p rior sale at the time of the e ntry of the Assumption Agr eeme nt. The Tria l Court thus found that there wa s no mutual mist ake. We a g ree

. I t is perhaps e lementar

y under our

law that in orde r t o set aside a contra ct on the g round of mutual mistake, the mistake in fa ct must be mutual. Thus, to be a mutual mistake
, the issue must invol ve a mater ial fac t about which neither party to the contra ct was c orre ctly informed, a

nd the par ties on

e a c h s ide of

the tr ans a c tio n we re mis take n in the ir be lie f a s to the ma te ri a l f a c ts w hic h w e re a

ba sis for the a g ree ment. Kosterman Dev elopment Corp., v. Outlaw Aircraft Sales, Inc. , 102 S.W .3d 621, 632 (Tenn. Ct. App. 2002) perm. app. denied (" I n order to authorize relief

for mistake the mistake g e ne ra lly mus t have be e n mut ua l, and it mus t have be e n mate ri a l" ); Lov e da yv . Ca te , 854 S.W .2d 877, 880 (Tenn. Ct. App. 1992) perm. app. de nied (1 99 3) ; Robinson v. Brooks , 577 S.W .2d 207, 209 (Tenn. Ct. App. 1978) cert. de nied (1979). Unilate ral mistake will not justify resc ission of a contra ct absent other circumstance s such as f raud or misrepre sentation. Lane v. Spriggs , 71 S.W .3d 286
, 2 8 9 (T en n. Ct. 2001) perm. app. de nied (2002) (re scission, canc ellation, and re aff irmation). On occ asion, our cour

ts have g rante d relief

from the e ffe ct of a

mistake which is unilat er al wher e the other pa

rty knows or has r eason to know of the other' s err or, and ha s g ood rea son to believe that a mi stake ha d been ma de. Cofrancesco Construction Company v. Superior Components, Inc. , 371 S.W .2d 821, 823-824 (Te nn. Ct. App. 1963) cert. de nied

.
The Defenda

nt, relying on an unre ported c ase f rom this Court, W

ilk e y , e t al v . R he a Co un ty , Tennessee

, et al
, [unpubl ished] 2000 Te nn. App. L exis 397, 2000 WL 782011 (Tenn. Ct. App., June 20, 2000), no perm. app. sought
, a sse rt s tha t the re fe re nc e in the As su mpt ion Ag re e me nt d oc ume nts to the Geor g ia proper

ty invalidates his A ssumption Ag ree ment on the g round of mutual m i s take. Although the case at bar

and W ilkey both involve issues where it wa s l at er d et ermined that leg al d o cu ments contained ina ccur acie s, there the simil arity ends. W ilkey i n v o l v e s t h e s a l e o f

pr op e rt y wher e at a

n auction, it was re prese nted that the seller was selli ng 10.5 acr es whe n only 7.94 acr es
was c onvey ed. The sale of la nd in W ilkey was the e ssence of the c ontrac t. The Court in W ilkey fo un d th e qu anti ty

of land to b e an is su e ma te ri a l to the tr ans a c tio n, that th e bu y e r h a d n o r e a so na

ble means of le arningthe correc t acr eag e, and that the seller wa s likewise of the mistaken be lief that 10.5

acr es, n o t 7

. 9 4 a c r e s , w a s b e in g c o n v e y e d

. I n th e s u it a t b ar , th e e s s e n c e o f th e c o n tr act wa s the

a ssumpt ion

of a loa n a g re e me nt thr ou g h wh ic h th e De fe nd ant a nd ano the r a ssume d a

n in de bte dn e ss previously

borrowe d by

a compa ny of which they wer e both direc tors, and borr owed a n additional

su m of mon e y ov e r a nd a bo ve that whic h pre vio us ly ha d be e n sec ur e d. Th e re wa s no mista ke a s to the a mou nt o f the loa

n in t he su it at ba

r, and no mis take a s to the te rm s o f r e pa y me nt. I n th e c a se

a t ba r, it i s unq ue sti on e d th a t th e le nd e r k ne w at the tim e of the c los ing of the loa n tha t th e Ge or g ia p r o p e rt y h a d

b e e ns o l d

t w o d ays e ar l i e r , an d s i m i l ar l y t h a to n e o f t h e t w o b o r

r o w e r s , M r

. D o c k e r

y, likewise knew . Fr om the standpoint of all of these pa rties, fa i l u re to remove r efe renc e to the Geor g ia prope rty

within these documents wa s merely a cle rica l error . The Tr ial Court found the matters in the ca se at ba

r not to be mater ial.4

The Tr ial Court also found in the ca se at ba r that the De fenda

nt had the mea

ns of lear ning the true infor

mation, a nd that he re lied, to his detriment, upon his co-borrow er. N onetheless, the Def endant asser

ts that he had no knowledg e of the sale by AFC of the Geor g ia prope rty . The Tr ial Court was unimpressed by his protes t ati ons, and questioned the c redibility of a ma n who claimed to know very

littl e about the sa le of la nd in Georg ia by the company

of which he was a

direc tor, when two day s later he persona lly committed himself to a loan in excess of one- half million doll ars to a id t hat sa me c omp any . We a

pp ly the pr e su mpt ion

of c or re c tne ss t o th e fi nd ingof

the Tr ia l Co ur

t. Gi ve n th e se fa c tua l f

ind ing s, our d e te rm inatio ns inW ilkey are c le arl y

dis tin g uis ha

ble fr om t he su it at bar , and the r

ule of lawapplied in W

ilkey ha s n o a

pp lic a tio n in

the su it b e fo re us

.
The Tr ial Court further

found that any

claims which the D efe ndant might have w ith reg ard to neg lige nt misreprese ntation arose and were either known to the Defenda nt or should have be en known by him in 1995, and knowledg e of Mr . Docke ry was imputed to him in 1 9 8 8 , all of which is more than thre e y ear s befor e this suit was filed in 1998 or the a nswer se tting for

th the defe nses was filed in 1999. Ag ain we ag ree

. The fac ts show that Def endant Bur ch knew , or ce rtainly should have known at the time he sig ned the Assumption Ag ree ment, that the Geor g ia prope rty was discussed i n t h e As s u mption Agr eeme nt which he sig ned. B urch r emained a member of

the B oard of Direc tors of AFC at all times w hen consideration of the sale of the two proper tie s o cc u rre d. Def endant B urch kne w or should have known when de mand for paym ent was made on him on Marc h 27, 1995, that AF C h ad i n fac t sold the Georg ia prope rty in 1988. I n a lar g er se nse, no repr esentation was eve r made to Defe ndant B urch of any control that he or the l ender had with reg ard to the Geor g ia prope rty , and AF C, the owner of the Geor g ia prope rty , had the r ight to sell that p r o p e rty a t a n y ti me , ju s t a s it

s o ld th e V ir g in ia

p r o p e rty to D e f e n d an t B u r c h an d

M r

. D o c k e r

y

. We

a g re e wi th t

he Tr ia l Co ur

t th a t D e fe nd ant B ur c h s ho uld have kn ow n o f t

he sa le of the Ge or g ia proper ty for a period of time so long that the three y ear statute of limitations had run, and base d upon that f ind ing , w e ne e d n ot f

ur the r a dd re ss t he la c k o f m e ri t of

tha t c la im.

Be cause we a g ree with the Trial Court that the Defenda nt either kne w or should have known that the Geor g ia prope rty

had bee n sold, we need not furthe r addr ess the finding of the Tr ial Court that the Geor g ia prope rty

was immateria l to the t ransa ction conce rning the Virginia property , or the fi nd ingby

the Tr ia l Co ur

t th a t th e De fe nd ant a

nd Mr . Doc ke ry

we re pa rt ne rs a s to thi s r e a l e state in which they

wer e co- tenants or the loa n in which they

wer e co- borrowe rs.

Def endant Burc h then further asserts a unil ater al m istake on hi s own part, c oupled with the defe nse of neg lige nt misre prese ntation. We have a lrea dy addre ssed the knowledg e of the Def endant wi th re sp e c t to the sa le of the Ge or g ia pr op e rt y

. Th e De fe nd ant' s k

no wl e dg e , b y

its e lf , d e fe a ts h is defe nse. None theless, we a re c ompelled to addre ss the application of the statute of limit ations to the Def e n d an t' s a ll e g a ti o n s o f

n e g li g e n t m is r e p r e s e n tati o n

. T h e li mi tati o no f a c ti o n s f o r n e g li g ent misrepre sentation are g overne d by the provision of Te n n es s e e Co d e A n n o ta te d § 2 8 -3-105, whic h provides a limit ation of three y ear s. Me dic al Ed uc ati on As sis tan c e Cor

p. v . Eas t Te nn esse e Sta te Un iv e rsi ty

Qu ill e n Co lle

ge v . M e hta , 19 S.W .3d 803, 817 (Tenn. Ct. App. 1999) pe rm . app . d e nie d (2000). In Medic al Education Assistance Corp.
, the C ourt was face d with a question similar to one now bef ore us, in the e nforc ement of a contra ct aga inst a phy sician. The phy sician alleg ed neg lige nt5

mis re pr e se ntatio n w hic h in du c e d h im t o s ig n a n emp loy me nt c on tr a c t c on ta ini nga c ov e na nt n ot t o compete. Be cause the phy sician did not raise the issue of misrepre sentation until he filed his answer
, which wa s more than thre e (3) y ear s befor e the Court found that he should have discove red the alleg ed misrepr esentation, his defense of misrepre sentation was ba rre d. Id . We find the fac ts of the

c a se a t ba r, wh e re the De fe nd ant a lle g e s mis re pr e se ntatio n ind uc ing him to sig n a

pr omi sso ry

no te

and oth e r l oa n d oc ume nts to b e su ff

ic ie ntly si mi lar a

nd le g a lly ana log ou s to the c ir c ums tanc e s in Medic al Education Assistance Corp., wh e re the De fe nd ant a lle g e d, a s a de fe ns e to a

no n- c omp e te ag ree ment, neg lige nt misreprese ntation inducing him to sign the employ ment contra ct. Thus, we find that the Trial Court c orre ctly found that the Def endant' s defe nse of neg lige nt misreprese ntation is tim e bar

red.

Thus , we fi nd the jud g me nt of the Tr ia l Court sh ou ld be a ff ir me d in a ll r e sp e c ts. Th e c a

us e will be rema

nded to t he Trial Court for a deter mination of further

attorney s' fee s, if any , which may be appr opriate, w hich have been inc urre d since the prior awa rd of counsel fee s. Costs of the appea l wi ll b e ta xed

a g a ins t th e Ap pe lla

nt.

___________________________________

R O B E R T E

. C O R LE W
, III SPEC I AL J UDGE