FILED

July 1, 1998

Cecil W. Crowson

Appellate Court Clerk

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

BOILER SUPPLY COMPANY, INC. )

)

Plaintiff/Appellant, ) Davidson Chancery

) No. 93-2848-I

VS. )

)

LUNN REAL ESTATE INVESTMENTS, ) Appeal No.

INC., ) 01A01-9605-CH-00246

)

Defendant/Appellee. )

APPEAL FROM THE CHANCERY COURT

FOR DAVIDSON COUNTY

AT NASHVILLE, TENNESSEE

THE HONORABLE IRVIN H. KILCREASE, JR., CHANCELLOR

For Plaintiff/Appellant: For Defendant/Appellee:

Charles Patrick Flynn Stephen H. Price

Gerald D. Neenan FARRIS, WARFIELD & KANADAY

FLYNN AND NEENAN Nashville, Tennessee

Nashville, Tennessee

John B. Link, III

Nashville, Tennessee

AFFIRMED AND REMANDED

WILLIAM C. KOCH, JR., JUDGE
1The lease specifically provided:

Lessor leases to Lessee, to have and to hold the same subject to all terms and

conditions set forth herein for a term of three (3) years, beginning on the 1st day of

January, 1989, and ending on the 31st day of December, 1992, unless sooner

terminated as provided herein (hereinafter referred to as the “Term”). 

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O P I N I O N

This appeal involves a dispute over the interpretation of a provision allocating

the responsibility for paying legal expenses in the event of a default or breach of two

leases. The lessee filed suit against the lessor in the Chancery Court for Davidson

County seeking a declaration that the leases had expired and requesting its attorney’s

fees in accordance with the provisions of the lease agreements. The trial court

granted the lessee’s motion for summary judgment and declared that the leases had

expired but denied the lessee’s claim for legal expenses. The lessee has appealed.

We have determined that the trial court correctly interpreted the lease agreements

and, therefore, affirm the summary judgment.

I.

Wallace Edward Lunn, Sr. established two businesses during his lifetime -

Boiler Supply Company, Inc. and Lunn Real Estate Investments, Inc. Boiler Supply

operated out of two industrial buildings in Nashville and Knoxville on property

leased from Lunn Real Estate Investments. When Mr. Lunn died in 1978, the

interests in the two businesses were divided among various family members. On

January 1, 1989, Boiler Supply and Lunn Real Estate Investments entered into two

new leases containing an ambiguous provision regarding their duration that stated on

one hand that the term of the lease was for three years, but on the other provided that

the lease would begin on January 1, 1989 and end on December 31, 1992 (a period

of four years).1

 

Disputes among Mr. Lunn’s family eventually caused them to redistribute their

interests in the two corporations. In May 1990, the family agreed that Wallace

Edward Lunn, Jr. would acquire all the stock in Boiler Supply that had been

previously held by other family members and, in return, that he would relinquish his

interests in the other assets in his father’s estate, including Lunn Real Estate

Investments. Part of this agreement included amendments to the 1989 leases
2The Nashville property was valued at $150,000; while the Knoxville property was valued

at $50,000.

3The leases provided that the properties would be appraised by three appraisers, one chosen

by Boiler Supply, one chosen by Lunn Real Estate Investments, and the third appointed by the other

two appraisers.

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providing (1) that the leases could be extended following the end of their initial terms

at Lunn Real Estate Investments’ option, (2) that Boiler Supply could purchase the

properties if Lunn decided to extend the leases, (3) that the purchase price for the

properties, if Boiler Supply elected to purchase them, would be the greater of

$200,0002 or average appraised value of the properties,3 and (4) that the leases would

terminate in ninety days if Lunn Real Estate Investments rejected Boiler Supply’s

proposed contract to purchase the properties.

As the end of 1991 approached, Boiler Supply wrote Lunn Real Estate

Investments to inquire whether it intended to extend the leases beyond their threeyear term. Lunn Real Estate Investments responded that discussions concerning the

extension of the leases were premature because the leases did not expire until

December 31, 1992. On January 2, 1992, Boiler Supply formally notified Lunn Real

Estate Investments that its three-year leases had expired and that it was holding over

on a month-to-month basis under the leases’ holdover clauses. Lunn again responded

that the initial terms of the leases did not expire until December 31, 1992. 

In May 1992, Boiler Supply offered to purchase the properties for $240,000.

Lunn Real Estate Investments rejected the offer on the ground that it was premature.

In December 1992, Boiler Supply again offered to purchase the properties, this time

for $200,000. Lunn Real Estate Investments again declined Boiler Supply’s offer and

informed Boiler Supply that it had decided to extend the term of both leases.

Thereafter, in March 1993, Boiler Supply again offered to purchase the properties.

Both parties designated appraisers, but when Boiler Supply did not receive the results

of Lunn Real Estate Investments’s appraisal, it submitted an offer to purchase the

properties for $221,500. Lunn Real Estate Investments rejected this offer, as it had

the preceding two offers.
4The provision for legal expenses in the lease provided:

If, on account of any breach or default by Lessor or Lessee of their

obligations to any of the parties hereto, under the terms, covenants and conditions of

this Lease, it shall become necessary for any of the parties hereto to employ an

attorney to enforce or defend any of their rights or remedies hereunder, and should

such party prevail, it shall be entitled to any reasonable attorneys’ fees incurred in

such connection.

-4-

In September 1993, Boiler Supply sued Lunn Real Estate Investments in the

Chancery Court for Davidson County alleging that the leases had expired and that

Lunn Real Estate Investments had not acted in good faith when it refused to turn over

its appraisal information. Boiler Supply requested the trial court to construe the terms

of the leases, to determine the rights of the parties, and to declare that the leases and

their amendments were terminated. It also requested the trial court to award legal

expenses pursuant to a provision in the leases.4 Lunn Real Estate Investments

responded to the complaint by asserting that Boiler Supply had failed to maintain the

property in good condition and that the parties had been unable to agree whether the

properties should be appraised “as is” or “as repaired.” It also asserted that Boiler

Supply’s offers to purchase the property had not been timely.

In June 1995 Boiler Supply moved for a summary judgment based on its claims

that the leases had expired because Lunn Real Estate Investments had failed to

properly exercise its option to continue the leases past their original terms and had

refused to accept its offers to purchase the property. At the hearing on the summary

judgment motion, Lunn Real Estate Investments conceded that the original leases

expired on December 31, 1991 and abandoned its claims that Boiler Supply had

failed to maintain the property. On August 18, 1995, the trial court granted Boiler

Supply a summary judgment and declared that the leases had terminated. When

Boiler Supply pressed for its legal expenses, the trial court held that it was not

entitled to its legal expenses because Lunn Real Estate Investments had not breached

or defaulted during the original term of the leases. Boiler Supply filed this appeal

after the trial court denied its motion to alter or amend its order granting the summary

judgment.

II.
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Underthe “American Rule” followed in Tennessee’s courts, losing parties need

not pay the legal expenses of prevailing parties unless required either by statute,

contract, or some other recognized equitable ground. See Kultura, Inc. v. Southern

Leasing Corp., 923 S.W.2d 536, 540 (Tenn. 1996); Kimbrough v. Union Planters

Nat’l Bank, 764 S.W.2d 203, 205 (Tenn. 1989). This appeal involves a contractual

fee-shifting provision.

Contracting parties remain free to agree to allocate the responsibility to pay

legal expenses caused by a breach in their contract. These agreements are subject to

the normal canons of contract construction. Accordingly, courts must construe these

agreements as written, see Associated Press v. WGNS, Inc., 48 Tenn. App. 407, 417,

348 S.W.2d 507, 511-12 (1961), and must also give effect to the parties’ intentions

consistent with legal principles. See Bob Pearsall Motors, Inc. v. Regal ChryslerPlymouth, Inc., 521 S.W.2d 578, 580 (Tenn. 1975). We must also construe the

agreement objectively without favoring either party, see Taylor v. White Stores, Inc.,

707 S.W.2d 514, 516 (Tenn. Ct. App. 1985), and we should ordinarily construe the

language according to its technical legal meaning unless the parties have established

some other meaning or unless the context in which the terms are used sensibly

indicates some non-technical meaning. See Empress Health & Beauty Spa, Inc. v.

Turner, 503 S.W.2d 188, 191 (Tenn. 1973); Fariss v. Bry-Block Co., 208 Tenn. 482,

487-89, 346 S.W.2d 705, 708 (1961).

Where a contract contains a provision allocating the responsibility for paying

legal expenses, the obligation to pay legal expenses is limited to only those instances

provided for in the contract. See Chicago Southshore & S. Bend R.R. v. Itel Rail

Corp., 658 N.E.2d 624, 634 (Ind. Ct. App. 1995). Legal expenses cannot be

recovered if the subject matter of the lawsuit is beyond the terms of the provision.

See Romero v. Hariri, 911 P.2d 85, 94 (Haw. Ct. App. 1996).

The expense-shifting provision at issue on this appeal applies only to the

necessary legal expenses incurred “on account of any breach or default by Lessor or

Lessee of their obligations . . . under the terms, covenants and conditions of this

Lease.” Accordingly, in order to recover its legal expenses, Boiler Supply must not

only be the prevailing party, but it must also demonstrate that it prevailed with regard

to claims involving Lunn Real Estate Investments’s breach or default of its
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obligations under the leases. See Houston v. Booher, 647 N.E.2d 16, 22 (Ind. Ct.

App. 1995); Shull v. First Interstate Bank, 887 P.2d 193, 196-97 (Mont. 1994).

Paragraph twenty-two of the leases defines the six events that constitute a

default under these leases. Since each of these events involves conduct of the lessee,

the contract contains no provision for default by the lessor. Accordingly, Boiler

Supply will be entitled to recover its legal expenses from Lunn Real Estate

Investments only if it was required to hire a lawyer to enforce or defend its rights

under the leases because of Lunn Real Estate Investments’ breach of the leases. 

Boiler Supply argues that Lunn Real Estate Investments breached the leases in

two ways: first, by not agreeing with its interpretation of the provision defining the

term of the leases and second, by refusing to provide its appraiser’s report concerning

the value of the properties in Knoxville and Nashville. A good faith disagreement

over the meaning of an ambiguous contractual provision does not constitute a breach

of contract. Accordingly, Lunn Real Estate Investments was not contractually

obligated to agree with Boiler Supply’s interpretation of paragraph two of the leases

and did not breach the leases by taking the plausible position that they did not expire

until December 31, 1992, rather than on December 31, 1991 as insisted by Boiler

Supply.

Under the 1990 amendment to the leases, Boiler Supply had the right to offer

to purchase the properties only if Lunn Real Estate Investments effectively extended

the leases indefinitely beyond their original terms. Since Lunn Real Estate

Investments failed to extend the leases before their initial terms expired, Boiler

Supply became a month-to-month tenant under the hold over provisions in the leases.

As a hold over tenant, Boiler Supply did not have a contractual right to purchase

either or both properties for the greater of $200,000 or the averaged appraised value

of the two properties. Thus, the parties’ negotiations concerning the property

beginning in 1992 were not governed by the leases, and the parties were free to

negotiate in any way they wished. Accordingly, Lunn Reality Investments had no

contractual obligation to hire an appraiser or to furnish Boiler Supply an appraisal

report during the negotiation process.

Even if Boiler Supply had a right to purchase the property under the 1990

amendment to the leases, Lunn Real Estate Investment’s failure to turn over its
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appraiser’s report is still not a breach of contract. The amendment to the leases

required the parties to ascertain the average assessed value of the properties based on

three appraisals - one appraisal performed by appraisers chosen by the parties and the

third appraisal by an appraiser appointed by the parties’ two appraisers. While the

parties apparently retained their own appraisers, their appraisers did not, at least

insofar as this record shows, designate a third appraiser. The average appraised value

of the properties could not be determined without this third appraisal, and without the

third appraisal, Boiler Supply could not purchase the properties. Since Boiler Supply

did not make an appropriate offer to purchase the properties, it cannot insist that Lunn

Real Estate Investments breached the leases by failure to turn over its appraiser’s

report. 

III.

Boiler Supply’s complaint against Lunn Real Estate Investments also

undermines its claim for legal expenses. Tenn. R. Civ. P. 8.01 requires complaints

to contain a short, plain statement showing that the plaintiff is entitled to relief and

a demand for judgment for the particular relief sought. While courts have a duty to

give effect to pleadings according to their substance rather than to their form, Fann

v. City of Fairview, 905 S.W.2d 167, 175 n.14 (Tenn Ct. App. 1994), they cannot

create claims that have not been pled. See Donaldson v. Donaldson, 557 S.W.2d 60,

62 (Tenn. 1977); Rampy v. ICI Acrylics, Inc., 898 S.W.2d 196, 198 (Tenn. Ct. App.

1994). 

Boiler Supply’s complaint simply requested a declarationthat its leases expired

on December 31, 1991. It cannot now transmogrify its declaratory judgment

complaint into one for breach of the leases. In a similar case, the Florida Court of

Appeals held that a seller of property who filed a declaratory judgment action arising

from an appraisal dispute with the buyer could not recover its legal expenses because

it had not filed suit to enforce the contract against the buyer. See Dade Sav. & Loan

Ass’n v. Broks Ctr. Ltd., 529 So.2d 775, 776-77 (Fla. Dist. Ct. App. 1988). Boiler

Supply’s suit seeking a declaration that the leases had terminated was not an action

to enforce its rights against breach or default by Lunn Real Estate Investments.

Accordingly, the trial court properly refused to award Boiler Supply its legal

expenses under the leases’ expense-shifting provisions.
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Boiler Supply’s declaratory judgment complaint must be distinguished from

Lunn Real Estate Investments’ later detainer action filed to recover possession of the

properties. Lunn Real Estate Investments filed this action when Boiler Supply

breached the leases by failing to vacate the premises. This court affirmed the trial

court’s decision to award Lunn Real Estate Investments its legal expenses because

the “lease contract provides for an award of attorney’s fees in the event of a breach,

if successfully litigated.” Lunn Real Estate Investments, Inc. v. Boiler Supply Co.,

No. 01A01-9704-CV-00191, 1998 WL 221112, at *__ (Tenn. Ct. App. May 6, 1998)

(No Tenn. R. App. P. 11 application filed). Since Boiler Supply’s action in this case

did not arise out of a breach of the leases, our decision in Lunn Real Estate

Investments’ appeal does not control the outcome of this case.

IV.

We affirm the judgment and remand the case to the trial court for whatever

further proceedings may be required. We also tax the costs of this appeal to Boiler

Supply Company, Inc. and its surety for which execution, if necessary, may issue.

______________________________

WILLIAM C. KOCH, JR., JUDGE

CONCUR:

_____________________________________

HENRY F. TODD, PRESIDING JUDGE

MIDDLE SECTION 

_____________________________________

SAMUEL L. LEWIS, JUDGE