### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE April 4, 2001 Sessio

n B. GAYDEN PATE, ET AL 

### . v. C & S OF TENNESSEE, INC., ET AL 

### .

Appeal from the Chancery Court for Cheatham County No. 1-108 Leonard W. Martin, Judge

No. M2000-02283-COA-R3-CV - Filed May 30, 2001
The plaintiffs sig

ned a contract f

or the purchase

of a new home, co

nditional on their a

bility to sell their present home and to obtain a mortgage loan. They gave the defendant developer $30,000 a s earnest mon ey. When they we

re unable to sell th

eir home, they

asked for the re

turn of the earne

st mon ey. The defen dant r efused, and the p urchasers sued. The trial court o rdered the defe

ndant to return the $30,000. We affirm, but we modify the court’sjudgment to assess interest and attorney fees against th

e sellers. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed as Modified
B EN H. C ANTRELL , P.J., M.S., delivered the opinion of the court, in which D. M ICHAEL S WINEY , J. and D ON R. A SH , S P .J. , joined. Jerry V. Smith, Dickson, Tennessee, for the appellants, C & S of Tennessee, Inc. and Mark A. Cunningham. Michael M. Castellarin, Nashville, Tennessee, for the appellees, B. Gayden Pate and wife, Marjorie Pate. OPINION
I. A C ONTINGENT H OME P URCHASE Gayden and Marjorie Pate owned a 2170 square foot home on Pond Creek Road in the City of Pegram, which was encumbered by a large mortg age ($175,000). They decid ed they nee

ded to improve their financial situation by selling their home andbuying a less expensive residence. On February 1, 1999, they listed the house and the twelve-acre tract upon which i t was locat ed with Crye-Leike Realtors, with an asking pric e of $229,000.-2-

The Pates found a new modular home on Cunn ingham Court in Kingston Springs that appeared to fit t heir needs. The home was on a perm anent foundation

, and was part of H

arpeth Valley Estates, a 38-unit subdivision under development by C & S Construction. The developer was using the house as an office and a model home for the subdivisi on. The Pates spoke to Mark A. Cunningham,

presid ent o f C & S, and explaine d that they w

ould have to sell the

ir Pegram home before they could buy a new residenc e. The developer allegedly explained that if they wan

ted him to hold the Cunningham Court pro pert y for them, they

would need to make

a substantial deposit. The Pates offered $30,000.
On March 25, 1999, the parties entered into a contract of sale. The pre-printed buy/sell real estate contract was furnished by Mr. Cunningham, with details as to price and conditi ons that he wrote in by hand indicated here by under lining. The c ontract recited that “the Buyer her

ewith deposits with C & S of Tennessee, Inc., the sum of $30,000.00 Dollars as earne st money to co

nstitute part payment of purchase price.” The contract also stated a purchase price of “ $99,500 , payable a

s follows: Pay $30,000.00 Down balance at closing .” Also, “[t]his contract is contingent upon Buyer’s ability to qualify for a new loan whenever a

new loan is part of

the termsof this contract. Buyer agrees to make sa id loan application on or before 3-30-99 with CSB Mortgage.” The contract does no

t conta in a time certain for

closing or an expir

ation date, but sta

tes in one place that “[t]he sale will be closed Upon Buyers Sale of their Home, ” and elsewhere that “Time is of the essence of this contract and all of the conditions thereof.” The contract also states that

in the event a brea

ch of the contrac

t results in a lawsu

it, the non-breac

hing party

“shall be entitled to recover reasonable attorney’s fee s and all costs associated with enforcement.” Three days after signing the contract, the Pat

es went to the Chea

tham State

Bank, and filled outan application fo r a 30-year , $70,000 mortgage loan. The bank granted the application, contingent

upon the sale of their home. The contingent approval expired before the home could be sold, and the Pates

filed a new applic

ation and receiv

ed another contin

gent approval. The Pates were not happy with the efforts made by the Crye-Leike agent to sell their home. On May 27, 1999, they chang ed to a differen

t agent, Sherry

Mills of RE/MAX BCA

Partners, and lowered their aski ng price to $1 99,900. Ms . Mills arr ange d for a n MLS Li sting, printed a color brochure for

the property, advertised in Homes Magazine, conducted open houses, and showe d the house at least thirty

times. At Ms. Mills’ suggestion, the Pates did some landscaping and redid the ceilings to make the house more appealingto potential buyers. When the listing agreement with the realtor expired, the Pates renewed it. By the Fall of 1999, the Pates were tired of the uncertainty of their situation. They asked the bank to give them a final decision on their loan application, and the bank obliged by giving them a statement of credit denial because of “Excessive obligations in relation to i ncome since pres ent home-3-

didnot sell.” Ms. Pate then called Mr. Cunningham and asked him to void the contract and to return the earnest money. He refused, and sugg ested that they ought to try to ge t a bridge loan.
In October, th

e Pates co ntacted an attorney. He wrote a letter on their behalf to Mr. Cunningham, dated October 21, 1999, stating that the Pates had bee

n unable to sell the

ir house or obtain a loan, and requesting the return of their $30,000. Mr. Cunningham did not respond to the letter.
II. P ROCEEDINGS IN THE T RIAL C OURT The Pates filed a complaint against C & S on November 19, 19 99. They ask

ed the court to issue a declaratory judgment that the contract had expired bec ause of their inability to sat isfy th e contractual contingencies within a reasonable amount of time, and to order the return of the

ir earnest mon ey. They also a

sked for $30,000 in

damages for breach of contract, and treble damages for violation of the Tennessee Consumer Protectio

n Act, as well as a ttorney fees and pre-judgment interest.
C & S answered, asking that the complaint be dismissed. The defendant contended that the contract had not expired, because all the parties understood that the sale of the Pates’ Pegram h ome could take an extended p

eriod of time, and

that the Pates shoul

d continue their g

ood faith effort

to sell the property. The plaintiffs subsequently amended their complaint to add a claim for conversion, and to name Mr. Cunningha m as a defendant in his individual capacity. The defendants’ answer to the amended complaint included a counter-claim for breach of contract. The defendants alleged that by taking the Cunningham Cou rt home off the mar

ket, they lost other opportunities to sell the pro pert y, thereby incurring monetary damages from the plaintiffs’ attempted breach. The trial court heard the case on July 13 , 2000. The witness es were Gay

den and Marjorie Pate, Mark Cunning ham, Sherr y Mills, and a loan officer with AmSouth Bank, formerly the Cheatham State Bank. The testimony of the parties differed only as to whether the Pates told Mr. Cunningham prior

to the formation of

the contract tha

t they thoug

ht that it would take

a long time to sell their home. Interestingly, the Pates testified on the stand that they finally mana

ged to sell their home about two weeks before the hearing, for a sale price of $188,950.
The trial court’ s judgment was fil ed on July 24, 19

99, and reads in pa

rt as follows: Where the time of performance is not fixed in a contract, t he law fixes a rea sonable

time in which it is to be performed. The Court finds that based on the intentof the parties and the circumstances surrounding this transaction a reasonable time for performance was six months from the contract date of March 25, 1999. This would be September 25, 1999.-4- As of September 25, 1 999 the plaintiffs h ad been unable to

sell their homeon Pond Creek Road d espite the ir go od faith e fforts to do so. As a result of their inability to sell their home they

were also unable

to obtain financing. This contract expired on September 25, 19 99 because the c

ontingencies we

re not satisfied w

ithin a reasonable time. The Court

finds that the plaintiffs are entitled to the return of their $30,000 earnest money deposit which was paid to C & S of Tennessee, Inc. The Court finds that the plaintiffs ar

e not entitled to pre

-judgment inter

est or attorney’s fees agains t the defendants. The counter-claim of defendant, Mark A. Cunningham, against the plaintiffs is dismissed. The defendants appealed.

III. T HE D URATION OF THE C ONTRACT Tennessee recognizes an implied duty of good faith and fair dealing in the performance and enforcement

of every contract. ACG, Inc. v. Southeast Elevator, Inc ., 912 S.W.2d 163 (Ten n. Ct. App. 1995). A conditiona l contract is one w

here the oblig

ation t o perform is dependent upon the happening of some contingency or condition (often referre d to as a condition pre ce dent) which is expressly stated in the contract. Stovall v. Dattel , 619 S.W.2d 125 (Tenn. Ct. App. 1981). Where a purchasing agreement

is contingent upon the buyer obtaining financing, the ag reement implies that the buyer will ma

ke a reasonable

and good faith e

ffort to obtain

that financing. Davidson and Jones Development Co. v. Elmore Development Co. , 921 F.2d 1343 (6 th Circuit 1991). The parties agree that the contract at issue was contingent on two events: that the Pates sell their Pegram home, an

d that they ob

taina loan to finance thepurchase price for the new home. The contract contained no time l

imit during which t

hese conditions ha

d to be satisfied. A

ppellants concedethe general principle that in the absence of a term in the contract specifying the amount of time by which the contingencies must be met, the law implies a rea sonable time

. See Minor v. Minor , 863 S.W.2d 51, 54 (Tenn. Ct. App. 1993). The developers argue

that the circumsta

nces of this

case show that the Pates anticipated that it might take them a

long time to sell their house, and that the parties therefore intended their contract to provide an extende

d time to complete th

e sale. They

claim that t

he unusual ly large deposit of earnest money was an inducemen t to them to withhold the house from other potential buyers for longer than t hey otherwise w ould have b een willin g. While this may very

well be true, it

doe s no t me an t hat the con tra ct c ont inu es i nde fin ite ly. We note that as the dr afters of the contract, the appellants could have set a time limit that they deemed sufficient for th

e appellees to se

ll their house

and obtain

a loan. Perhaps it w

as not to their advantage to do so, because i n the interim they

were able to use

the earnest money as an interest-free $30,000 loan. In any case, Mr. Cunningham testified that he had drawn up hundreds of contracts of-5-

sale during his

16 years in

the real estate b

usiness, but that onl

y a few of t

hose contracts (

he could not specify the number) lacked a closing date.
Inte res tin gly, Sherry Mills testified that in her 17 years as a real estate agent, she had never drafted a sales contract without a closing date, and that a closing date was a stan dar d requirement in the industry for

such contracts. She stated that where the sale of the buyer’s home is a condition for closing, a

reasonable range for a closing date is between 60 and 90 days after the signing of the contract, and that she believed four months to be the outside limit, because “you don’t know what’s going to happen.” There is nothing in the record to indicate t hat the trial court failed to take the unusual circumstances of this transactio n into account in its rulin

g. Because of

those circumstances, it found that six months was a reasonable time to allow the Pates to sell their house andto close the deal w ith the appellants. Since the Pates we re unable to do so, the court correctly found that they w ere entitled to a sk f or t he re tur n of the ir m one y. The appellants argued that the effort mad e by t he Pates to sell their Pegram home was deficient, and thus that the failure of the condition precedent was their own fault. They ar gue that the Pates’ initial asking price was unrealistically high in light of the neig hborhood where i t was located, and the fact that a portion of their 12-acre tract was in the f

lood plain. The evi

dence shows, however, that the Pates made a sustained and g

ood fait h eff ort to sell their property, and that they readily lowered their asking price at the suggestion of Ms. Mills. The fact that they ultimately had to settle for a stil l lower price is not unusual in the real estate business, and cannot be considered evidence of bad faith. The appellants’ counter-claim was based on the idea that they suffer ed damages from the appellees’ breach of contr act, because

in reliance upon an eventual closing by the Pates, they withheld the Kingston Springs home from other potential buyers. However, even if we agreed that th e Pates were guilty of a breach of contrac t (which we do not) there was no proof of any suc h damages. Mr. Cunningham testified that several people inquired a

bout the house prio

r to the Fall of 1999, but that the

re were no offe

rs. Further, the defendants were compensated in several wa ys for withholding the pr

operty in question from potential buyers between March 25 and September 25, 1999. During that

period, they were able to continue to u se the property as an office and

model home, and the

y used the e

arnest money to pay down a company indebtedness, thus realizing a substantial savings on interest that they otherwise would have paid.
As for the period after September 25, if they had honored the Pates’ request to refund the earnest money, the developers could have put the house back on the m arket, thus mitigating any potential damages. But Mr. Cunningha m testified that he

took no steps to sell

the property

after Ms. Pate asked him to void the contract.-6- IV. O THER I SSUES

A . P RE -J UDGMENT I NTEREST The courts have long been authorized under the common law to award pre-judgment in

terest in a ccordance w ith the principles of equity, as an element of damages. While the allowance of prejudgment

interest is

discretionary

with the trial cour

t, "[t]he genera

l rule is to allow interest in a

ll cases where the amount of the debt is certain and not disputed on reasonable grounds." Mitchell v. Mitchell , 876 S.W.2d 830 (Tenn. 1994); see also Tenn. Code. Ann. § 47-14-123. The usual rationale for such an award is that it compensates the o

bligee for loss o

f the use of his funds, when that loss has resulted from the obligor’s fa

ilure to pay

an obligation ac

cording to its terms. There is no absolute right to pre-judgment interest, but its award has been described as "familiar and almost commonplace," under such circumstances. Deas v. Deas , 774 S.W.2d 167, 170 (Tenn. 1989). The trial court ruled that the Pates were entitled to the return of their $30,000, but not to any pre-judgment

interest. It appear s to us, h owever, that the defendants were obligated to return the money after the Pates notified

them that they wished to terminate the contract. They did notdo so, butcontinued to

benefit from kee

ping the money

, while at the same

time depriving th

e Pates of its use. We accordingly award pre-judgme nt interest to the plaintiffs at the rate of

6% per annum, withthe interest calculated as accruing between November 21 , 1999 , one month after t he Pates’ attorney made a formal demand for a refund, and the date of the judgment below. Pos t-judgm ent interest will accrue at the statutory rate. See Tenn. Code Ann. § 47-14-121, 122.

B . A TTORNEY F EES A s we stated ab ove, the contrac t of sale was furn

ished by the d

efendant devel

oper, and it included a provision for the payment of reasona ble attor ney fe es result ing from l itigatio n. We note that the defendants’ counter-claim included a prayer for “rea sonable attorney fees as provided in the contract.” In light of

the defend ants’ assertion of their own contractual rights, and the expenses incurred by the plaintiffs because of the defendant’s re

fusal to refund th

eir mon ey in a ti mel y way, it appears equita

ble to require the

defendants to ful

ly honor thei

r contract. We remand the cause to the trial co urt for the p urpose of ta king proof an d setting a reasonable fee

for the Pates’ at

torney for his services in the

trial of this cause

and on appeal.-7- V. The judgment of the trial court is affirmed as modified and the cause is remanded to the Chancery Court of Cheatham Co

unty for the

calculation of pr

e-judgment inte

rest and attorney

fees, and for any

further proceedings that may be necessary. Tax the costs on appeal to the appellants, C & S of Tennessee, Inc. and Mark A. Cunningham.

_________________________________________ BEN H. CANTREL

L, PRESIDI

NG JUDGE, M.S.