# FILED

February 27, 1998 Cecil W. Crowson Appellate Cou rt Clerk 

## IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

JAMES M. WE

BB, SR. and ) RICKY L. MORROW, ) ) Plaintiffs/Appell

ants, )

) Davidson Chancery ) No. 94-873-I VS. ) ) Appeal No. ) 01A01-9512-CH-00566 MORTGAGE SYSTEMS CORPORATION, ) LARRY LATHAM AUCTIONEERS, INC., ) GEORGE A.HATCHER, SR., and ) OSIAS ENTERPRISES, INC., ) ) Defendants/Appel

lees. )

APPEAL FROM THE CHANCERY COURT FOR DAVIDSON COUNTY

AT NASHVILLE, TENNESSEE THE HONORABLE IRVIN H. KILCREASE, JR., CHANCELLOR
For James M. Webb, Sr. an d For Larry Latham Auctioneers, Inc. : Ricky L. Mor

row : Michael J. Vetter J. Randall Hooper Brewer, Kra use, Brooks & Mills Hooper & Hooper Nashville, Tennessee Brentwood, Tennessee For George A. Hatcher, Sr. : J. Russell Farrar D. Todd Sholar Nashville, Tennessee For Osias Enterprises, Inc. : E. Steele Clayton, IV Bass, Berry & Sims Nashville, Tennessee



## AFFIRMED AND REMANDED

WILLIAM C. KOCH, JR., JUDGE1 Spe cif ica lly, Mr. Gregory offered to provide financing on the followingterms: 20% down, 7.75% interest, amortization up to thirty years, and a five or te n-year balloon. -2- 

## O P I N I O N

This appeal involves a dispu te over represent

ations concerning the

availability of financing for

a piece of comm

ercial property

sold at auction. Af

ter losing their earnest m oney because the ir financing did not m

aterialize, the

successful bidders sue d the owner of the prope

rt y, the auctioneers, and a mortgage broker in the Chancery Courtfor Davidson County, alleging that they had misrepresent

ed the availability

of financingfor the purchase. The trialcourt granted the bidders a summary judgment against the mortgage broker but also granted a summary judgment to the p r operty owner and the auctioneers with r egard to th e bidd ers’ cl aims against them. On this appeal, the bidders assert

the summar

y dismissal o

f their claim

s against the propert

y owner and the auctioneers was unwarrante d. We have determined that the material facts are not in dispute and that the property owner and the auctioneers are entitled to a judgment a

s a matter of l

aw. Accordingl

y, we affir

m the trial cour

t.

I.

Osias Enterprises, In

c. (“Osias ”) decided to sell fo ur pieces of Class B
com mercialproperty includi ng the Rivergate E

xecutive Center in G

oodlettsvi lle

. After Osias contracted

with Larry L

atham Auctione

ers, Inc. (“

Lath am”) to sell the properties at auction, Latham retained George A. Hatcher, a licensed Tennessee real estateb rok er and auctioneer, to sell the properties. Latham’s contract with Osias required Latham to

assist with promoting t

he sale as well as

conducting the auction

.

Mortgage Systems C

orporation

(“Mortgage

Systems”)

was one of the tena

nts in the Rivergate Executi ve Center. When John D. Gregory , Jr., presiden

t of Mortgage Systems, learned that Osias was selling its commercial properties, he contacted Osias to offer financing f

or the auction. 1 Osias accepted Mortgage Systems’s offer, a nd Mr. Hatcher obtained the term

s o f the finan cing Mr. Gregory was offering in or

der to include them in t

he advertiseme

nts for the

auction. As part o

f the promotion of

the sale, Osias paid for a m

arketing brochure, a marketing video, a due diligence package,-3-

and various newspaper

advertisement

s. These ma

te r ials contained the fo

llowing representations co

ncerning financing: Excellent Financi

ng 20% down, 7.7% APR, 30 yr. amort

ization, 5- 10 yr. Balloon Call John Gregory at Mortgage Systems Corporat ion 615-851-7410 Applications a

re available i

n due diligence packages or by calling the Auction In

formation Ce

nter. The due diligence packa

ge contained a copy of Mr. Gregory’s letter to Osias offering the financing, as well as a blank financing application with i nstructions.

On September 26,

1993, both Ricky L . Morrow and James M. W

ebb, Sr. saw
an advertisement

for the auction. Mr. Morrow owned a grocery store and five other pieces of property lea

sed to the United States Postal Service. Mr. Webb also owned and operated grocery stores and was a genera l partn er in Web b Inves tment Co mpany, Ltd. that owned a shopping center and two other co mmercia l buildings. Messrs. Webb and Mor

ro w discussed the auct

ion and then called the

Auction Inform

ation Ce nter for

a brochure. Mr. Webb also inspected the Rivergate Executive Center. Shortly thereaf ter, Messrs. Webb and Morrow rece ived brochures about the properties and also obtained the due diligence packag e and video tape. All of these materials contained the desc ription of the fina ncing being offered by Mortgage Systems.

After decidin g t hat the Rivergate E xecutive Center w

ould be a good investment,

Messrs. Webb a

nd Morrow toured the

property with anOsias employee. They also d iscus sed Mo rtgag e Syste ms withMr. Hatch er who to ld them t hat “the y” had “checked ou

t” Mr. Gregory

and that “they

felt like he was okay” and that “they had don e some big financing deals. ” Messrs. Webb and Morrow subm

itted their application for up to $ 2,000,000 in financi ng to Mortgage

Systems a

nd requested a written loan c ommitm

ent before the auction. On October 18, 1993, Mr. Gregory informed Messrs. Webb a

nd Morrow that the

ir loan had been approve d and that he would give them a written

loan commi

tment before t

he auction on October

19, 1993. Mr. Gregory told them that Mortgage System s “had a lender that

was g oing to do-4-

this,” that “th

ey had a lot of applications to process and that they were getting them out as fast as they could.”

On the day of the a

uction, Mr. Gre

gory inform

ed Mr. Webb tha

t he would

be unable to provide a com

mitment letter because it lacked one signature. He explained that the signature was only a formality and that they had been approved for a loan of up to $2,000,000. Mr.Webb inform ed Mr. Gregory

that heand Mr. Morrow intended to submit a bid based on Mortgage Systems’s financing, and Mr. Gregory informed him that they would h

ave the written co

mmitm ent by 9:00

a.m. t he next morning. Messrs. Webb and Morrow were the successful bidde

rs on theRivergate Execu tive Center with a bid of

$1,590,75 0, includi ng a one per cent buyer’s premium.After the auction, they executed a

sale s contract and paid $159,075 as their earnest money deposit. The contract req

uired that the closing

take place no later than

November 19, 1993. Mr. Gregory

again informe

d Messrs. Webb

and Mo rrow that they

would receive a written loan commitment for eighty percent of the purchase price.

I n stead of providing the written loan commitment as he had promised, Mr

. Gregory informed Messr

s. Webb and Morrow

on the day following the auction that he was still

working on the financ

ing. Messrs. W

ebb and Morrow realized that they had a prob lem aft er a wee k pass ed wit hout recei ving the wr itten loan c omm itmen t. Mr. Gregory finally informed them that he had bee n una ble to obtain financin g for them. When Messrs. W

ebb and Morrow atte

mpted to obtain al

ternative financ

ing , they discovered that lend ers were not m

aking loans on C lass B office space. Accordi ngly, th ey w ere unable to close the sale of the prope rty on Novem

ber 19, 1993 and were requi

red to forfeit thei

r $159,075 earnest m

oney deposit to Os

ias.

In March 1994, Messrs

. Webb an d Morrow sued Osias, Latham, and Mr. Hatcher for negligent m

isrepresentation,

seekin g res cission of the contra ct and restitution

of their earnest m

oney. They

also sued Mortgage Sy stems for fra udulent and negligent misrepresentation and violation of the Tennessee Consumer Protection Act. When Mort gage System s did not answer the c

omplaint, Mess

rs. Webb and Morrowmoved for a sum mary jud gment on its clai

m s of fraudulent and ne

gligent misrepres en tation. Osias, Latham, and Mr. Hatcher also m oved for summary judgments

with regard to the

claims against them by Messrs. Webb and Morrow. On July 20, 1995, the trial co urt entered an order gr anting Osias, Lath am, and Mr.-5-

Hatcher a sum maryjudgment, and on October 12, 1995, the trial court granted Messrs. Webb and Morrow a summar

y judgm e nt against Mortgage S ystems and awardedthem a $190,321. 86 judgment. M essrs. Webb and Morrow now appeal from the summary

judgment dism

issing their claim

s again st Osias , Latham, and Mr. Hatcher.

II.
Summary judgments enj oy no presump tion of correctness on app eal. See City of Tullahoma v. Bedf

ord County , 938 S.W. 2d 4 08, 412 (Tenn. 1997) ; McClung v. Del ta Square Ltd. Partner ship , 937 S.W.2d 891 , 894 (Tenn. 1996) . Accordingly , reviewing

courts must m

ake a fresh de

term ination concerning w hether the requirements

of Tenn. R. Civ. P. 56 have been s atisfied. See Hunter v. Brown , 955 S.W.2d 49, 50-51 (Tenn. 1997); Mason v. Seaton , 942 S.W.2d 470, 472 (Tenn. 1997). Summary judgments are appropriate only when there are no genuine factual disputes withregard to the c laim or defens e embodied in the

motion and when t

he moving party is entitled to a judg ment as a matter of law. See Tenn. R. Civ. P . 56.04; Bain

v. Wells , 936 S.W.2d 618 , 622 (Tenn. 1997) ; Carvell v. Bottoms , 900 S.W.2d 23, 26 (Tenn. 1995).

Courts reviewing sum

mary jud gments must view the evidence i n the light most favorable to the nonmoving party and must also draw all reasonable inferences in the nonmoving

party’s favor. See Robinson v. Omer , 952 S.W.2d 423, 426 (Tenn. 1997); Mike v. Po Group, Inc. , 937 S.W.2d 790, 792 (Te nn. 1996). Thus, a summary judgment should be granted only

when the undisputed fa

cts reasonably suppor

t one conclusion

-- that the mov

ing party is entit

led to a judgment as a matter of law. See McCall v. Wilder , 913 S.W.2d 150 , 153 (Tenn. 1995) ; C arv ell v. Bottoms , 900 S.W.2d at 26. A party

may obtain a

summary judgment by

demon strat ing that the nonmoving

party will be u

nable to prove an essenti al element of its case, see Byrd v. Hall , 847 S.W.2d 208, 212-13 (Tenn. 1993), bec aus e the inability to prove an
esse ntial element of a claim necessarily renders a ll other facts immaterial. Se e Alexander

v. Memphis Individual Practice Ass’n , 870 S.W.2d 278, 280 (Tenn. 1993); Strauss v. Wyatt, Tar

rant, Combs, Gilb

ert & Milo

m , 911 S.W.2d

727, 729 (Tenn. Ct. App. 1995).-6- III.

Messrs. Webb and Morrow take issue with the t

rial court’s c onclusion that representations

attributed to Osias , Latham, and Mr. Hatcher do not, as a matter of law, support a claim for negligent misrepresentation. They insist that the trial court shouldnot have granted the summary judgme nt bec a use the stateme

nts in the promotional materials and Mr. Hatcher’s comments led them to believe that they would be able to obtain fina

ncing from Mort

gage Systems a

nd that they could

safely rely on Mortgage

System’ s promises to prov ide financing.

In Tenne ssee, claims for negligent misrepresent

ation are based on Restatement (Second) of Torts § 552 (1977). See Ritter v. Custom Chemicides, Inc. , 912 S.W.2d 128, 130 (Tenn. 1995); John Martin Co. v. Morse/Diesel, Inc. , 819 S.W.2d 428 , 431 (Tenn. 1991). To mak

e out a claim for negligent misrepresentation, a plaintiff must prove that (1) the defendant was acting in the course of its business ,

profession, or em

ployment, or

in a transaction in w

hich it had a pecuniary

(as opposed to gratuit

ous) interest; and (2) the defendant supplie d faulty inform

ation meant to guide others in their b

usiness transactions;

and (3) the defendant fail

ed to exercise rea

so nabl e care in obtaining or comm

unicating the inform

ation; and (4) the plaintiff jus

tifi ably relied upon t

he information provided by the de

fendant. See Robinson v. Omer , 952 S.W.2d a t 427; Hill v. John Banks Buick, Inc. , 875 S.W.2d 667, 670 (Tenn. Ct. A

pp. 1993). This app

eal hinges on th

e sufficienc y of the plaintiffs’ proof with

regard to the second

and fourth elem

ents of the

cause of action.

We turn first

to the requirem

ent that the defenda

nt must have suppli

ed faulty information

meant to guide others in

their business transa

ctions. Messrs. W

ebb and Morrowcharacterize th

e statements in

the promotional m

aterials concern ing the availability

of financing through

Mortgage

Systems a

s tantamount of a

guarantee of financingfor otherwise qua lified pros pective purchasers. Thi s characterizat ion cannot reasonably be s

upported by the pla

in wording of the m

aterials. The representations

rel ied o n by Messrs. Webb and Morrow are nothing more than stat ements that Mortgage Sy stems was off ering financing at th

e stated terms t o-7-

qualified persons and that persons interested in this financing should inquire further with Mortgage Systems. The materials re

ceived by Messr

s. Webb and Morr

ow cl early stated th

at the sales of the properties w

ould not becontingent on financin g. The mate

rials did not require any specific ty

pe of financing to be e

ligib le to bi d at the auction. Pe rsons desiring to participate in the auction were free to obtain financing from any source, and n othing in the mate rials stated or infe

rred that Mortgage

Systems was th e exclusive or even preferred lender for these properties. The materia ls made no representations

concerning Mortgage

Systems’ reliabil ity or solvency and di d not promise that a ll per sons seeki ng fin ancin g thro ugh M ortga ge Syst ems would receive it. Accordingly,

the material s promoting the au ction contained no

faulty inform

ation
conce rning t he terms of the auction or the avail

ability of finan

cing for prospective bidders.

Mr. Hatcher’s comments on the day bef ore the sale to the effe ct that “the y” thought that Mortgage Sy stems was “ okay” and that Mo

rtg ag e Systems “had done
some big financing deals” are similarly not faulty inform ation meant to guide others in their business transactions. These statements were, at most, personal observations and statements of opinion, and the record contains no eviden ce t hat the stateme nts
were inaccurate. Mr. Gregory had been in the residential mortgage business and had only recently bega

n t o arran ge commer

cial mortgage s. While Mr. G regory mig

ht have been new to commercial real estate lending, the record contains no evidence that he had experienced an

y other business di

fficul t ies or that he was i ncapable of arrangingthe type of financing req uire d for this auction. T he simple fact

that the financing for Messrs. Webb and Morrow fell through does not, by itself, prove that Mr. Hatcher’s comments m ade about Mortgage Systems were inaccurate.

We turn next to the questio n of M essrs. Webb and Morrow’s claim of jus tif iable reliance on both the statements in the promotional materials and Mr. Hatcher’s comments on the day before the auction. Messrs. W ebb and Morrow had been dealing directly

with Mr. Gregor

y and Mortgage S ystems for one week before the auction. There i s no evidence that Osias, Latham, or Mr. Hatcher wer e involved in these discussions dire ct ly or indirectly . During this tim e, Messrs. We

bb and Morrowhad ample opport unity to inquire int

o Mortgage Syste

ms business background

and method of ope

ration. By the

time they s

ubmitted t

heir bid on the-8-

Rivergate Executive

Center, Messrs.

Webb and Morrow

knew: (1) that the s ale would not be con tin gent on financing, (2) that they had requested a formal, written loan commitm ent, (3) that Mortgage Systems was arranging the financing with another lender, and (4 ) that Mortg age Sys tems was not going to be able to provide them w

ith the requested written loan commitment because it lacked one signature.

Messrs. Webb and Morrow signed the c ontract to purchase

the Rivergate Executive

Center based on Mr. Gre

gory’s assura

nce that he had obtain

ed financing for them. In light of the circumsta

nces known to them

when they bid on t

he property and signed the contract , n o r easonable person cou ld find that Messrs.Webb and Morrowwere relyin

g on any representation other than Mr. Gregory ’s representati on that he had obtained their financing and that he would deliver their writ ten loan commitm ent by 9:00 a.m . the next day.Neither the m aterials prom

oting the auction
nor M r. Hatcher’s com

ments relieve

d Messrs. Webb a

nd Morrow from

exercising ordinary prudence and their sound business judgment. Accordingly, like the trial court, we have determined that Mess rs. Webb and Morrow have not demonstrated that they will be ab

le to prove

that they justi

fiably relied o

n any represent

ations made by either Osias, L

atham, or Mr. Hatcher conce rning Mortgage Sy stems or Mr. Gregory.

IV.

We affirm the j udgment and rem and the case to the tr

ial court f

or whatever further proceedings ma

y be required.We also

tax the costs of this

appeal, jointly

and
severa lly, to James M. Webb, Sr. and Ricky L . Morrow and their s urety for which execution, if necessary, may issue.

____________________________ WILLIAM C. KOCH, JR., JUDGE

CONCUR:

__________________________________ _ HENRY F. TODD, PRESIDING JUDGE MIDDLE SECTION

__________________________________ _SAMUEL L. LEWIS, JUDGE