### IN THE COURT OF APPEALS OF TENNESSEE AT KNOXVILLE August 2, 2000 Session

S.E.A., INC. v. SOUTHSIDE LEASING COMPANY, ET AL.

Appeal from the Chancery Court for Knox County No. 137852-1 John F. Weaver, Chancellor

FILED September 29, 2000

No. E2000-00631-COA-R3-CV

S.E.A., Inc. brought suit in Knox County Chancery Court seeking an injunction and alternatively, damages, against its lessor, S o uthside Leasing Com pany, and Southside ’s secured cre ditor, Moss W. Yater, regarding a non-disturbance agreement. Yater is also Souths ide’s majority

shareholder, president and director. S.E.A.sought to sublease a portion of the property. Pursuant to the ter ms of the lease between S.E.A. and Southside, Southside consented to the sublease and executed th e requested non-disturbance agreement. However, Yater, Southside’s secured credi tor , refused to execute the non-disturbance agreement unless Souths ide recei ved a portion of the rent from the sublease. Defendants filed motions for summary judgment which were granted by the Trial Court. S.E.A. appeals the

Trial Court’s gra

nting of summary jud

gment to the Defen

dants. We affir

m.

Tenn. R. App. P. 3; Judgm ent of the Chancer

y Court Affirme

d; case Remanded.

S WINEY , D. M ICHAEL , J., delivered the opinion of the court, in which H OUSTON M. G ODDARD , P. J., and H ERSCHEL P. F RANKS , J. joined.

Charles A. Wagner, III, and W. Turner Boone, Knoxville, Tennessee, for the appellant, S.E.A., Inc. Fredrich H. Thomforde, Jr., Knoxville, Tennessee, for the appellee, Southside Leasing Company. George W. Morton, Jr., Knoxville, Tennessee, for the appellee, Moss W. Yater.

OPINION

### -2- Background

This appeal arises from the Trial Court’s grant ing of summary judgment to the Defendants,

S outhsi de Leasing Company (“Southside”) and Moss W. Yater (“Yater”). Plaintiff, S.E.A ., Inc., (“S.E.A.”

), brought suit see

king an injunction or

in the alternative

, damages, again

s t its lessor, Southside, and Southside’s creditor, Yater, re gardi ng S.E.A.’s reque st to sublease prop

erty located on Merch

ants Drive in

Knoxville, Tennessee, to a third party, BankFirst. Yater has a dual rolein this matter since he is Southside’s creditor as well as Southside’s majority shareholder, director and president.

Southside is a closely-hel d Tennes see corporation which recorded

its corporate charter with the Secretary of State on May28, 1947. At that time, Southside’s president was Yater’s father. Currently, Yater is Southside’s maj ority s hareholder, president and general manager. Southsi de’s only other shareholde r is Yater’s siste

r, Marthanna Ya

ter. Ms. Yater ha

s little involvement

with the management of Southside. Southside’s Board o f Direc tors is composed of Yater, his sister, and South side’s bookkeepe

r, Randall Webb. Y

ater and Webb a

re the only employees of Southside. Webb assists Yater in keeping corporate records and managing an apartment complex which is owned by Southside.

It appears Southside

has held few, if any, shar

eholder meetings

or board of direc

tors’ meetings in the past five years. Southside ha s not k ept any minutes of its shareholders’ meetings
or dire ctors’ meetin

gs since at least 1979. Southside does prepare annual reports to send to the Tennessee Secretary of State and files Form 1099's and W-2's with the Internal Revenue Service.

On March 22, 1982, S.E.A.’s predeces sors-in-interes t, Joe C. and Joyce Holdredge and William C. and Violet Martin, entered into a Gr ound Lease

with Southside. The G

round Lease providedfor

a term beginning in

March, 1982 and e

nding on Decembe

r 31, 2017, with an o

ption to extendthe lease to the year 2042. The Ground Lease concerned five lots loca ted in Knoxvi lle, Tennessee, described as Lots 4, 5, 6, 7 and 8. Lot 4 is the property at issue in this case. The Ground Lease also sets forth a sche

dule of rent for L

ots 5-8 which were

developed at the

time of the Ground Lease and aseparate rent schedule for Lot 4 which allows for different rent amounts, depending upon whether S.E.A. developed Lot 4.

The Ground Lease

contemplates the

possible sublease

of the property a

s follows:

7. LESSOR’S CONSENT REQUIRED FOR ADDITIONAL SUB-LEASE

OR ASSIGNMENT. This lease may not be assigned, nor may any part o f the leased pre

mises be sublet, without the written

consent of Lessor

. Lessor agrees

that it will not unreasonably withhold its consent to sublease . . . .

Th e le ssees, the Martin

s and the Holdredg

es, executed the

Ground Lease ind

ividually while the lessor, So

uthside, execute

d the Ground Leas

e as follows:

### -3- LESSOR: Southside Leasing Company By Moss W. Yater, President

Later in 1982, the Ground Lease was amended to substitute Merchants Plaza, Inc. as lessee. Paragraph 19 of the Ground Lease was also amended to include the following:

Lessor agrees that as part of any refinancing of existing debt and as
a condition of Lesse

e’s obligatio

n t o subordinate its interest in the leaseh old estate as herei

nabove provided,

that Lessor shall o

btain from the holder of any mortgage or be neficiary of a deed of trust placed on the premises,

a non disturbance and attornment agreement which shall also be executed by Lessor and Lessee . . . .
Thereafter, on Nov ember 27, 1984, Merchants Plaza assigned the Ground Lease to S.E.A. as part of a Chapter 11 reorganization plan for the bankruptcy of the lessee.

A Non-DisturbanceAgreement was executed by S.E.A., the Defendants, Marthanna Yater, an d Joe Holdredge on November 6, 1984. The 1984 Non-Disturbance Agreement was necessary for S.E.A.’s reorganization plan as it required S.E.A. to obtain financing to meet the terms of the plan. The 19 84 Non-Disturban ce Agreement se

t forth the partie

s’ agreement as

follows:

1. The Yaters a s the holder of the obligations secured by the Deed of Trust and the Lessor [Southside], as the fee owner of the Premises, agree

with respect to

the D eed of Trust, the GroundLe ase and any subse quent deed or dee

ds of trust made to secu re fu rther borrowings by [Southside], tha t so long as the Lessee [S.E.A.], its succes sors and assi g ns, performs all of [S.E.A.’s] obligations under the Ground Lease
as amended, [S.E.A.], its successors and assigns shall not be joined as a

part y defendant in any foreclosure action or proceeding which may be instituted or taken by the holder of the obligations secured by the Deed of Trust or any re

newal, modification, replacemen t o r extensions thereof or any subsequent

deeds of trust which may be granted with respect t o the Premises; and [

S.E.A.] shall not be

evicted from t

h e Premises nor shall [S.E.A.’s] leasehold e state under the GroundLease be terminated or disturbed, nor shall any of the [S.E.A’s] rights under the Ground Lease be affected i n a ny way by reason of any d

efault under the

Deed of Trust

or any deed of trust hereafter placed against the Premises
. . . . * * *1 The 19 84 No n-Disturb ance A greem ent is the only relevant document in the record that was signed by Yater,

individual

ly.



### -4- 4. The parties acknowl e dge tha t it is the purpose and intent of t his Non-Disturbance

Agreement to allo

w [S.E.A], its successor’s (si

c) and assigns to r

emain in quiet and peaceful possession of the Premises so long as it performs obligations of [S.E.A.] under the Ground Lease regardless of any existing or subsequent borrowings by [Southside], its successors and assigns, and rega

rdl ess of any default which may now or here after exist on the part of [Southside] under the Deed o f Trust and/or any subsequent deed or deeds of trust granted on the Premises to secure subsequent obligations of [Southside]. Nothing herein shall in any way be construed so as to limit the right of [Southside

], its successor

or assigns, from further encumbering the Premises.

The 1984 Non-Disturbance Agreement does not make any mention of the righ ts and obligations associated with S.E.A’s sublease of the premises.
The 1984 Non-Distu

rbance Agreem

ent was execute

d by the parties as

follows: 1

LESSOR: SOUTHSIDE LEASING COMPANY By: Moss W. Yater Its: President

HOLDREDGE: Joe C. Holdredge

YATERS: Moss W. Yater Marthanna Yater

LESSEE: S.E.A., INC. By: Joe C. Holdredge Its: President

Moss W. Yater and Marthanna Ya ter were parties to the 1984 Non-Disturbance Agreement

because the Yaters are beneficiaries of a 1978 deed of trust which encumbers the leased premises along with other tracts of real property owned b y Southside. The 197 8 Deed of Trust providedthat

the tracts of South

side’s property w

ould serve as sec

urity for the Yaters’ indorsement

### -5-

of a promissory note executed by Southside and payable to First TennesseeBank in the amount of $225,000.

The 1978 Deed of Trus twas executed by Moss Yater, Vice President of Southside. On May 9, 1984, the 1978 Deed of Trust was amended to reflect the Yaters’ payment of the F irs t Tennessee Bank loan in the amount of $194,548.95 for the benefit of Southside.

Sometime

prior to November 1, 1997, S.E.A. and BankFirst began negotiations regarding the sublease of Lot 4 to BankFirst for a period of ten years with an option to renew up to four additional lease terms at five years per term. The total rent payment for the initial ten year term
was $330,000, to be paid in monthly installmen

ts of $2,750.00. S.E.A. presented both Defendants witha non-disturbance agreement (“BankFirst Non-Disturbance Agreement”) for th e BankFirst sublease. Paragraph

Two of the BankFirst Non-DisturbanceA greement sets forth a nondisturbance agr

eement and conse

nt to sublease by Sou

thside as follows:

2. Agreements by Owner [Southside] .[Southside], as lessor under the Ground Leas e , hereby represents that S.E.A., Inc. is the current lessee under the GroundLease, that the Ground Lease is in full force and effect with respect to the Premises, and t

hat no event or condition of default exists under the terms of the Grou nd Le ase. If [S.E.A.] under the Ground Lease defaults pursuant to its terms, [Southside] agrees to notify BankFirst, as Lessee under the Lease Agreeme

nt, and further a

grees to give Bank

First 30 days to cure any such default, su

ch 30-day period to begin when such notice is mailed certified mail to BankFirst . . . .

[Southside] agre

es that BankFirst ma

y remain in quiet possession of the Premises as long as BankF irst is no t in default under the terms of the Lease Agreement, and as long as S.E.A., Inc. is not in default under the terms of the Ground Lease, or aslong as any defaults under the Ground Lease ar

e cured within

30 days of any written noti ce of default
se nt to BankFirst. If there is an uncured default under the Ground Lease, BankFirst also may remain in quiet possession o f the P remises as long as BankFirst pays t o [Sout hside] the monthly r ental required u

nder the Lease Agreement,

which would otherwise be p aid to S .E.A., Inc. [Southside] consentsto the Lease Agreement entered into by BankFirs t as Lessee and S.E.A., Inc., as Lessor . . . . Paragraph

Three of the BankFirst Non-Disturbance Agreement contained the following non-disturbance clause for Yater:

3. Agreement

by Yater . Yater, as holder of that certain indebtedness in the original principal amount of $225,000 .00, s ecured by the Yater Deed of Trust, agrees that Bank

First shall not be join

ed as a party defendant in any foreclosureaction or

proceeding which may be instituted or taken by Yater2 The T ri al Cour

t, in i ts Memor

andu m Opi nio n, h

eld tha t S. E.A. ’s Comp laint fail ed to sta te a cla im for piercing the corporat

e veil t o reach Yater, indivi

dua lly. Thereaf ter, S.E.A. file d a Mo tion for L eave to A mend its Complaint

and an Amended Motion for Leave t o Amend its Complaint in order t

o allege f

acts suf ficient to invoke t

he instrument

ality r ule. The Tri

al Court gr

anted S.E.A. ’s motion.



### -6- as the holder of such obligations, or any renewal, modification, replacement
or extension thereof, or any subsequent deeds of trust which may be granted withrespe c t to the Premises; and BankFirst shall not be evicted from the Premises nor shall BankFirst’s leasehold estate be terminated or distur be d,
nor shall any of BankFir

st’s rights under th

e Lease Agree

ment be affecte

d in any way by reason of default under the Deed of Trust or any deed of t rus t hereafter placed against the Premises.

It is undisputed that Yater, as president of Southside, executed the BankFirst NonDisturbance Agreement. Yater agrees with S.E.A. that pursuant to the terms of the Ground Lease, Southside could

n ot unreasonably withhold its consent to a sublease by S.E.A. However, Yater, acting indi vidua lly as the secured creditor of Southside, refused to execute the BankFirst NonDisturbance Agreement. Yater, as Southside’s secured creditor, demanded that in exchange for his execution of the BankFirst Non -Disturbance Ag

reement, S.E.A. give Southside 25-30% of the rent that it received from BankFirst under the sublease. S.E.A. did not agree to this demand. Yater never executed, in his individual capacity, the BankFirst Non-Disturbance Agreement. Southside never encouraged

Yater, individually, to execute the BankFirst Non-Disturbance Agreement. Thereafter, the potential sublease between S.E.A. and BankFirst failed.

S.E.A. filed suit and initially sought an injunction requiring Defendants to ex ecute the documents needed for the BankFirst sublease and, in the alternative, sought damages associated withthe loss of the bene

fit of the BankFirst sublease. Yater filed a Motion for Summary Judgment which the Trial Court granted. TheTrial Court, in its Me morandum Opinion, h

eld that: (1)Yater, individually, had no contractual duty to execute the BankFirst Non-Disturbance Agreement and that Yater’s execution of the 1984 Non-Disturbance Agreement did not impose any obligation on Yater to execute another non-disturbance agreement; (2) Yater’s re fusal to execute the BankFirst NonDisturbance Agreement as an individual did not warrant pierci

ng Southside’s cor

porate veil,

and in turn, subjecting Yater

, as majority share

holder, to person

al liability. Yater

didnot exercise

control over Southside to cause it to commit any wrong upon the Plaintiff a s Southside complied

withits contractual duties and obligations under the Ground Lease and executed the BankFi rst NonDisturbance Agr

eement. 2
Thereafter, Southside filed aMotion for Summary Judgment which the Trial Court granted. The Trial Court, in its Memorandum Opinion granting Southside’s Motion, held that there was no genuine issu

e of material fa

ct, finding that:
[the Plaintiff made] no actionable allegation . . . that the defendant Southside failed to comply with any of its contractual obligations to the plaintiff. The defenda nt Sout hside executed a

nd delivered all

### -7- documen ts that the plaintiff requested the de

fendant Southside

to execute.
Discussion

While not stated by S.E.A. exactly this way, S.E.A. raises the following issues with respect to Southside: (1) whether Southside breached the lease agreement and its duty of good fait

h by its failure to cause Yater to execute the non-dis turbance agreement for the sublease, and by Yater’s demand that a portion of the subleas e rent be pr ovided to Southside, and (2) whether the corporate veil of Southside should be pier ced in reverse so as to render Southside liable for the failure of Yater to execute the non-disturbance agreement. With respect to Yater, S.E.A. raise s the following issues on app ea l: (1) whether Yater, as lender to Southside, had an independent or contractual duty to execute the non-disturbance

agreement,

(2) whether

Southside’s corporate form should be disregarded so that Southside’s majority shareho lder, Yater, is he

ld liable for his refusal to execute the non-

disturbance agr

eement, and (3) w

hether Yater, a

s presidentand agent of Southside, is liable for his actions taken on behalf of Southside.

OurSupreme Court outlin ed the standard o

f review of a moti

on for summ

ar y judgment in Staples v. CBL & Assoc. , 15 S.W.3d 83 (Tenn. 2000):

The standards governing an appellat e court's review of a motion for summary judgmentare well settled. Since our inquiry involves purely a question of l aw, n o pr esumption of correctness attaches to the lower court's judgment, and our tas k i s confinedto reviewing the record to det ermine whether t

he requirements

of Tenn. R. Civ. P. 56 have been met. See Hunter v. Brown , 955 S.W.2d 49, 50-51 (Tenn.1997); Cowden v. Sovran Bank/Ce ntral South , 816 S.W.2d 741, 744 (Tenn.1991). Tennessee Rule of Civil Procedure 56.04 pr ovides that summary judgment is appropriate whe re: (1) there is n o genuine issue w

ith regard to the

material facts relevant to the claim or defense contained in the motion, see By rd v. Hall , 847 S.W.2d 208, 210 (Tenn.1993); and (2) the moving pa

rty is entitled to a judgment as
a matter of law on th

e undisputed fac

ts. See Anderson v. Standard Register Co. , 857 S.W.2d 555, 559 (Tenn.1993). The moving party has the burden of

proving that its motion sati sfies th ese requirements. See Downen v. Alls tate Ins. Co. , 811 S.W.2d 523, 524 (Tenn.1991). When the party seeking summary

judgment makes a

properly supported motion, the burden s hifts to the nonmoving pa rty to set for

th specific fac

ts establishing the existence of disputed, material facts which must be resolved by the trier of fact. See Byrd v. Hall , 847 S.W.2d at 215.

To properly support its motion, the moving party must either affirma tively negate an essential element of the n on-moving party's claim or conclusively establish an affirmative defense. See McCarley v. West Quality Food Serv. , 960 S.W.2d 585, 588 (Tenn.1998); Robinson v. Omer , 952 S.W.2d 423, 426 (Tenn.1997). If the moving party fails to negate

a claimed basis fo

r the suit, the non-

moving party

's bur den to produce evidence establishing the existence of a genuine issue for trial is not

### -8-

triggered and the mot ion for sum mar y ju dgment must fail. See McCarley v. West Quality Food Serv ., 960 S.W.2d at 588; Robinson v. Omer , 952 S .W.2 d at 42 6. If the moving party successfully neg ates a claimed basis for the action, the non-movi ng party may not simply rest upon the pleadings, b ut must offe r proof to establish the existence of the e

ssential elements

of the claim.

The stand ards governing the assessment of evidence in the summary judgment context are also well

establi shed. Courts must vie w the evidence in

the light most favorable to the nonmoving pa

rty and must

also draw all reasonable inferences in the nonmoving party's favor. See Robinson v. Omer , 952 S.W.2d at 426; Byrd v. Hall, 847 S.W.2d at 210-11. Cour ts should grant a s

ummary judg

ment only when both

the facts and the inferences to be drawn from the facts permit a re aso nable person to reach only one conclusion. See McCall v. Wilder , 913 S.W.2d 150, 153 (Tenn.1995); Carvell v. Bottoms , 900 S.W.2d 23, 26 (Tenn.1995). Staples , 15 S.W.3d at 88-89.

A fact is “mater

ial” for summary judgment purposes, if it must be decided in order “to resolve the substantive claim or defense at which the motion is directed.” Luther v. Compton , 5 S.W.3d 635, 639 (Tenn. 1999) (citing Byrd v. Hall, 847 S.W.2d at 211).

A trial court’s interpretation of a contract is a ma

tter of law that is

to be reviewed de
novo on appeal with no presumption of correctness. See Guiliano v. Cleo, Inc. , 995 S.W.2d 88, 95 (Tenn. 1999) (citing Hamblen County v. City of Morristown , 656 S.W.2d 331, 335-36 (Tenn. 1983)); Park Place Ctr. Enter. v. Park Place Mall Assoc. , 836 S.W.2d 113, 116 (Tenn. Ct. App. 1992). Our Supreme Court in G uiliano v. C leo , addressed the c ourt’s role when

interpreting con

tracts as follows :
When resolving disputes

concerning cont

ract in ter pretations, our ta

sk is to ascertain the

intentio n of the parties base d upon the usual, natural, and ordinary meaning of the contractual language.

Guiliano , 995 S.W.2d at

95 (citing Hamblen County , 656 S.W.2d at 333- 34; Bob Pearsall Motors , Inc. v. Regal Chrysler-

Plymouth , Inc. , 521 S .W.2d 578, 580 (Tenn. 1975)). In addition, “[i]n the absence o f fraud or mistake, courts should construe contracts as written.” Marshall v. Jackson & Jones Oils, Inc. , 20 S.W.3d 678, 681 ( Tenn. Ct. App. 1999)

(citations o

mi tted). Also, the co

urts should “avoid strained cons tructions th at create ambiguities where none exist.” Id. at 682. Furthermore, “[t]he courts may not make a new contract for parties who have spoken for themselves,

. . . and may not relieve parties of the contractual obligations simply because these obligations later prove to be burdensome or unwise.” Id. at 6 82 (citing Petty v. Sloan, 197 Tenn. 630, 640, 277 S.W.2d 355, 359 (195 5); Atkins v. Kirkpatrick , 823 S.W.2d 547, 553 (Tenn. Ct. App. 1991)).

In this matter, the 1982 Ground Lease constituted an agreement between Southside and S.E.A.’s predec

essors-in-inter

est. The plain language of neither the 1982 Ground Lease nor the AmendedGround Lease creates any obligation or duty of Yater, as a secured creditor of Southside,3 Th e Tria l Court, in i ts Memorandum Opinion granting Yater’s Motion for Summary Judgment, quoted Corbin on Contracts, § 2 (19 52), as follows:

In English legal history, the term ‘ob ligation’ has been u sed in a variety of sen ses. At ti me s it has mea nt a form al docum ent, such a s a sealed b ond. A gain, i t ha s meant the entire group of j ural relati ons created by cer

tain facts , usually expressi ons of agreement. The tendency has been to narrow its usage, so that it has
come to be an alm ost exact sy nonym of the term ‘legal duty .’ This is a term that should be used so lely as a corr elative of the term lega l right

. If a duty (obligat ion) exists, it is a dut

y to some person has a right against the one subject to the duty. If
a legal right e

xists, i t is a ri ght against some person who is under a duty to t

he one having the right

. These two cor

relati ve terms express a legal relation between

the two persons, this re

lation consist ing of certai

n specifi c facts of a kind such a

s have in the past

caused organi

zed societ

y to give re

medi es against the duty b earer in favor of the righ t holder. T his is what is meant by vinculum juris , and by ‘control’ that the ho lder of t

he right has

over the bear

er of the dut

y. Past j udicial

and legisl ative history enables us to look at the s pecific fact

s and predict that

A can get judgment against B if t he latter does

not perform as

promised. Legal

relati ons are merely existing fac ts of life view ed in the light of a pas t uniformity of soci

al action, that enable u s to predict similar action in the future with respect to two or more persons.

Corbin on Con tracts §2 (1 952); 1 Jo seph M . Perillo, Cor bin on C ontracts § 1.2, at 6 (rev. 19 93) (em phasis in o riginal) (citat ions omitt

ed). We incorpor

ate thi s portion of the Tria l Court’s Memorandum Opinion into our opi nion.



### -9- to execute the requested non-disturbance agreement. Yater was not a party to these contracts. See id. ; 1 Joseph M. Perillo, C orbin on Contracts § 1.2, at 6 (rev. 1993) (stating that “[ i]t is commonly said that a contract cannot exist even though there have

been expression

s of mutual assent,

unless there is also a legal obligation. ”) (emphasis added). 3

Furthermore, the record does not contain any proof that the parties’ intentions were otherwise. The 1982 Ground Lease does state that Southside, as the lessor, may not unreasonably withhold its consent

to a sublease by the lessee. The undisputed facts show that Southside, through its president,

Yater, executed the BankFirst Non-Disturbance Agreement and, therefore, consented to the sublease for Lot 4. Moreover, while the Amended Ground Lease speaks of the duty of Southside, as lessor , to obtain a non-disturbance agreement, this duty arose only in the context of “any refinancing of exi sting de bt.” S.E.A.’s request for a new and separate non-disturbance agreement

in this instance did not arise from the circumstances contemplated by the Amended Ground Lease.

S.E.A.’s argument that Yater, as lender, had a duty at common law to execute a

nondisturbance agreement for a potential sublessee is similarly rejected. S.E.A. concedes that there is4 The Plaint iff ci tes to a Connecticut

state court case

and a law review article as auth orities in sup port of this argum ent. Howe ver, we a gree with the Trial Co urt’s determ ination tha t these auth orities prov ide little, if any, leg al basis for this argu ment. 

### -10- no Tennessee case

law regarding th

is issue. 4 Accordingly, we hold that Yater, as Southside’s lender, didnot have a duty, ei

ther contractua

lly or at common law, to execute the requested non-disturbance agreement for the benefit of a potential sublessee.

S.E.A. also contends that Southside breached its duty of good faith under the 1982 GroundLease by (1) Southside’s failure to cause Yater,

its creditor, to execute the BankFirst NonDisturbance Agreement; and (2) the requ est of Yater, ac

ting as an individua

l, that 25%-30% of the rent received by S.E.A. from BankFirst be given to Southside. O u r Suprem e 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, t he common law imposes a duty of good faith in the performance

o f c ontracts. 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 o urt of Appeal s in TSC Industries, Inc. v. Tomlin, 743 S.W.2d 169, 17 3 (Tenn. App. 1987):

It is true that there is implied in every con

tract a duty of good f aith a nd fair dealing in its performance and enforcement,

a nd a p erson is presumed to know the l aw
. See Restatement (2d) Contracts, § 205 (1979). Whatthis duty consists of, however, depends upon the individual contract in each c ase. In construing
c ontracts, courts look to the language o f th e instrumentand to the intention of the parties, and impose a construction which is fair and reasonable.

In C ovington v. Robinson, 723 S.W.2d 643, 645-46 (Tenn. App. 1986), which was relied upon by the Co

urt o f 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 parties as determinedb y a reasonable and fair construction of the language of the instrument. In a later decision, the Cou rt of Appea ls held that good faith in performa

nce is measured b

y the te rms of the contract.

“ They[the parties] may by agreement, howe ver, determine the standards by which the performance of

oblig ations are to be measured.” Bank of Crockett v. Cullipher, 752 S.W.2d 84, 91 (Tenn. App. 1988) (alteration in original).

### -11- * * *
[In this case,] [t]he language of the agreements clearly states the terms and reflects the intent of the parties . . . . Performance of a contract according t o its terms cannot be characterized as bad faith. (emphasis added).

* * *
[I]t should be noted that the common law dut y of good faith in the performance

of a contra ct does not apply to the formation of a contract. See Re st atement (Second) of Contracts, § 205 cmt. c (1979). Consequently, the common law duty of good fai th does not extend beyond the agree

d upon terms of the c

ontra ct and

the reasonable

contractual expe

ctations of the par ties. See Sheets v. Knight , 308 Or. 220, 779 P.2d 1000 (1989) (emphasis added). Wallace v. National Bank of Commerce, 938 S.W.2d at 686-687.

In this matter, none of the documents executed by S.E.A. and Southside, including the 1982 Ground Lease, the Amended Ground Lease, and the 1984 Non-Disturban ce Agreemen t, contain terms that requir

e Southside somehow

to cause its cred

it or to execute the BankFirst NonDisturbance Agreement. Southside performed its contractual duties and obligations by executing th e BankFirst Non-Distu rbance Agreem

ent. Accordingly, Southside’s condu ct cannot b e characterized as bad faith.

S.E.A. also contends that

Southside’s corpo

rate form should

be disregarded and that Southside and Yater

should be treated as one and the same. S.E.A. argues that the corporate veil of Southside should be pierced so as to render Yater, the individual, liable for the refusal of Southside’s president and majority shar

eholder, who also

happens to be Yate

r, to execute the

BankFir s t NonDisturbance Agreement. On theother hand, S.E.A. also argues that the corporate veil of Southside should be pierced, in re

verse, to find South

side liable for the

actions of Yater

, its ma j ority shareholder. S.E.A. argues that Yater’s refusal, as the individual creditor of Southside, to exe

cute the BankFirst Non-Distu

rbance Agreem

ent s hould be attribute

d to Southside. This, a

ccording to S.E.A.’s argument, would constitute a breach of the 1982 Ground Lease t erm since Southside , in essence, had withheld its “effective consent” to the sublease through the conduct of Yater.

Courts pierce the corporate veil, or disregard the corporate entity, to find the “true
owners of the entity ... liable when the corp orati on is liable for a d ebt but is without fun

ds due to
somemisconduct on the part of the officers and directors.” Muroll Gesellschaft M.B.H. v. Tennessee Tape, Inc. , 908 S.W.2d 211, 213 (Tenn. Ct. App. 1995) (citing Anderson v. Durbin, 740 S.W.2d 417 (Tenn. Ct. App. 1987)); see Manufacturers Cons olidation Serv., In

c. v. Rodell, Nos. W1998-00889- COA-R3-CV, W1998-00882-COA-R9-CV, 2000 WL 286727, at * 16 n. 12 (Tenn. Ct. App. Mar. 10, 2000) (appl. perm. appeal filed June 11, 2000) (stating tha t “[t]raditional

ly, courts have us

ed this

### -12-

theory to impose liability against a controlling shareho lder who has used the corp orate entity to avoid his legal obligation

s.”) “A corpora

tion and its stockhol

ders are distinc

t legal entities ev

en if al l the stock in the corporation is owned by one stockholder.” Hadden v. City of Ga tlinburg , 74 6 S.W.2d 687, 689 (Tenn. 1988) (citing Parker v. Bethel Hotel Co. , 96 Tenn. 252, 34 S.W. 209, 215 (1896)). When faced with the issue of piercing the corporate veil, courts should proceed wit h caution. Schlater v. Haynie , 833 S.W.2d 919, 925 (Tenn. Ct. App. 1991) (quoting 18 Am.Jur.2d Corporations,

§ 43, at 842, n. 79, 80, 81) (stating that “the principle of piercing the fiction of the corporate veil is to be applied with great caution and not precipitately, since there is a presumption of corporate regu

larit y”). This Court in Schlater v. Hayni e , discussed the issue of piercing the corporate veil a

s follows:

The separat e identity of a corporation may be disregarded upon a showing that it is a sham or a dum my or whe re necessary to accomplish

ju stic e. Oak Ridge Auto Repair Serv. v

. City Finance Co. , 57 Tenn. App. 707, 425 S.W.2d 620.

In an appr op riate case and in furtherance of the ends of justice, a corporation and the individual or individuals owning all its stock and assets will be treated as identical. E.O. Bailey & Co. v. Union Planters Title Guaranty Co. , 33 Tenn. App. 439, 232 S.W.2d 309.

* * *

Eachcase involving disregard of

the corporate entity must rest upon it s special facts. Generally, no one factor is concl usive i n determining whether or not to disregard a corporate entity; usually a combination of factors is pre sent in a particular case and is relied upon to resolve the issue. 18 Am.Jur.2d Corporations, § 48, [at] 847, [n.] 41 and 42.

Even though corporate

formalities have

been observed, o

ne may still challenge the corporate

entity by showing tha

t he has been the v

ictim of some basically unfair device by which the c orpo rate form of business organization has been used to achi

eve an inequitab

le result . . . . 18 Am.Jur.2d Corporations, § 48, [at] 851, [n.] 60, 61.

While generally, a corporation will be looked on as a legal entity

. .

. , the corporate f

iction will be disre garded and the c orporate veil pierced in appropriate, special, unusual or compelling circumstances,
as where sufficie

nt reason to the co

ntr ary app ears, where the corporation is created or used for an improper purpose, or wherethe corporate form has been abused, as when used to an end subversive of the corpora

tion’s p olicy. In such cases, courts will disregard the corporate entityand deal with substancerather than form, as though

### -13- the corporation did no

t exist . . . . 18 C.J. S . Corporations § 9, [ at] 274, 275.

There is a presumption that a corporation is a distinct entity, separate from its shareholders, officers, directors or af filiat ed corporations, and the party wishing to negate the existence of such separate

entity has the burden of pr oving facts sufficient to justify piercing the corporate veil. 18 C.J.S. Corporations § 18, [at] 290. Schlater v. Hayni

e , 833 S.W.2d at 925. Although the issue of whether to pierce a corporate veil is not generally suitable for summary judgment, we find that the Trial Court in this matter correctly granted summaryjudgment to the Defendants. See Mike v. Po Group, Inc ., 937 S.W.2d 790, 795 (Tenn. 1996); Electric Power Bd. of Chattanooga v. St. Joseph Valley Structural Steel Corp. , 691 S.W.2d 522, 526 (Tenn. 1985). From the undisputed material facts, Southside is not a sham or a dummy corporation. See Schlater
v. Haynie, 833 S.W. 2d at 925 (citing Oak Ridge Auto Repair Serv. v. City Finance Co. , 425 S.W.2d 620, 622 (Ten n. Ct. App. 1967)). Southside’s corporate form has been in existence since 1947. Although Southside is a close ly-held corpora

tion, it is still a legal entity with a separate iden

tity from its majority shareholder as it has officers, a boardof directors, an

d conducts busines s activities. See id. at 925-926 (statin

g that “the owner

s of a corporatio

n have a right to co

ntrol it so long as they do not use the control to defraud

creditors of the corporation.”) Furthermore, and most importantly, from the undisputed material facts, Southside did not use its corporate form for an improper purpose or abuse its corporate form. See id. at 925. (citing 18 C.J.S. Corpor ations § 9, at 274, 275). Southside did not withhold consent to S.E.A.’ s sublease of Lot 4 and in fact, executed

the BankFirst Non-DisturbanceAgreement via its president,Yater. Accordingly, we agree with the Trial Court’s determination that the undisputed material facts of this matter require that Southside’s corporate veil not be pierced.

S.E.A.’s argument that the corporate veil should be pierced in reverse so as to render Southside liable

for Yater’s refusa

l to execute the Ba

nkFirst Non-Distur

bance Agreeme

nt also fails for the rea sons already discussed as to why Southside’s corporate veil should not be pierced. Further, a review of Tennessee court decisions indicates that no Tennessee co

urt has addresse

d this issue i n the context of a s hareholder/cor

poration relation

ship. Although our Su

preme Court in Continental Bankers

Life Ins. Co. of the South v. The Bank of Alamo , 578 S.W.2d 625 (Tenn. 1979), implicitly recognized t

hat the co rporate veil could be pierced in reverse, we find that case to be inapplicable

to the circumstances before us. The court in Continental Banker s examined this issue in the context of a parent/subsidiary corporation relationship. Here, S.E.A. is seeking to pierce the corporate veil in reverse so as to mak e the corporatio n liable for the c

onduct of its majori

ty shareholder. This Court in Schlater v. Hayni e distinguished the Continental Banker s case which involved parent/subsidiar y corporations fr

om cases involvin

g shareholder/corporation relationship s. Schlater v. Haynie , 833 S.W.2d at 925 (appl. per m. appeal denied May 11, 1992) (stating that “Continental Bankers . . . involved a parent corpora

tion and its subsidiar

y and is not applica

ble to the present case for that reason”). The only other Tennessee decision which involves this i

ssue is5 Unlike the Continental B ankers case, t he court in Manufactur e rs Consoli

dation dealt wit

h a shareholde

r/corpora

tion relati

onship. The def

endants in Manufacturers Consolidat

ion argued that

the court shou l d affirm the dism issal of the co rporate p laintiff’s claim s due to the cond uct of its 50% shareho lder wh o entered the suit
as a party via a motion to interven e. Manufacturers Consolidat

ion , 2000 WL 286727, at * 16. The trial court placed conditions

upon th e shareho lder’s interv ention in th e suit. Id., at * 14, 16. When the shareholder failed to meet

these conditions, the trial

court dismissed t

he shareholder’s int

ervening complai nt and the corporate pl aintif f’s underl

ying comp laint, under T enn. R. C iv. P. 41.02

. Id., at * 14. This Co urt f ound an abuse of discretion in the trial court’s dismissal o f the corp orate plain tiff’s under lying com plaint. Id. , at * 15-16. The Manufacturers

Consolidat

ion court stated that:

W e conclu de that the a pplication of [the theo ry of pierc ing the co rporate v eil]

should not have led to the dismissal of the [corp orate plaintiff’s] claims. I n so holding, we express no opi nion on whether a t

rial cour t, pursua nt to Rule 41. 02, could dismiss bot

h a corporati

on’s clai

ms and t he cl aims of it s control

ling shareho lder based upon th e theory o f piercing the corpo rate veil.

Id. , at * 17. This Court further reasoned that the record did not show that the t rial court,

prior to the dis

missal, indi

cated that it expect

ed the corpora

te plai ntiff t o satis fy the condit

ions in t he event the plaint

iff/sharehol

der failed

to do so. Id.



### -14- Manufacturers Consolidation Serv., Inc., v. Rodell , 2000 WL 286727, a t * 16 n.12, in

which this Co urt briefly discussed this issue and its treatment by other jurisdictions but stopped s hort o f
a pplying this rule. 5 Accordingly, we hold the Trial Court did not err in declini ng to pierce th e corporate veil in reverse.

CONCLUSION

The ju dgment of the Trial Court is affirmed, and this matter remanded for further proc eeding s as may be required, if any, consistent with this Opinion, and for collection of the costs below. Costs of this appeal are taxed to the Appellant, S.E.A., Inc., and its surety.

___________________________________ D. MICHAEL SWINEY, JUDGE