# FILED

June 25, 1998 Cecil Crowson, Jr. Appellate C ourt Clerk IN THE COURT OF APPEALS OF TENNESSEE AT KNOXVILLE

CANONIE E

NERGY, IN

C. and ) WGI, INC., ) ANDERSON CHANCERY ) Plaintiffs/Appellees ) NO. 03A01-9710-C H-00481 ) v. ) HON. WILLIAM E. LANTRIP ) CHANCELLOR TENNESSEE ENERGY PIPELINE ) AND STORAGE COMPANY, ) ) Defendant/Appel

lant ) REVERSED

Lewis S. How ard, Jr., Knox ville, for Appell

ant. H. Bruce Guyton, Knoxville, for Appellee.



### O P I N I O N

INMAN, Senio

r Judge This is an action for

a declaratory

judgment. In 1992 an option was executed by four (4) corporations engaged in gas and oil explorati on and development: Can onie Energy, Inc. [CEI]; WGI, Inc.; Coal Creek Mining a

nd Manufacturing Co.

[CC]; and Tenn

essee Energy Transport, Inc. [TET]. These corporations created T EPSCO, another corporation, in 1992,

but CEI and WG

I chose not to becom

e shareholders at t

he time TEPSCO was chartere d, choosing instead to h

ave the right to acqui

re, by option, 25 percent of the shares of TEPSCO withi n three years. To the extent perti

nent, the Option pro

vides: “WHERE AS, the parties agree, in accor dance with the procedures and lim

itations set forth he

rein, to perm

it CEI/WGI t

o acquire a 25% stock own ership in TEPSCO.2 NOW THEREFORE, in consideration of the m utual agreements and undertakings of the parties hereto, it is agreed as follows: 1. During a three (3)

year period fr

om the date her

eof, on written notice of T

EPSCO to CEI/

WGI or CEI/W

GI to TEPSCO

(i) at such time as TEPSCO requir es additional workin

g capital, or (ii) at the option of CEI/WGI, CEI/WGI m ay acquire a 25% stock ownership in TEPSCO by timely m aking the cash payment for such 25% stock ownership as hereinafter determined by the appraisal method.

. . . . . . . 6. This right to acquire a 25% stock interest in TEPSCO may be invoke

d and exercised only

once and only as t

o the entirety of such 25% interest

, is non-assignable a

nd non-transferable

by CEI/WGI and shall terminate on the earlier of: (a) three y

ears from this date, (b) the d

efault by CEI

/WGI in the inves

tment schedule o

r other requirements under the Ex and Dev Agreement, (c) the notice to CEI/WGI un

der Paragraph 1 a

nd the declination of C

EI/WGI to purchase stock, or

(d) the failure of

CEI/WGI to t

imely close

on the acquisition of stock he

reunder and pay

the consideration therefore.” On January 6, 1993, CEI notified TEPSCO that it

elected to exerci se the option to the exclusion of WGI and would a

cquire the 25% stock

interest in TEPSCO for $50

0,000.00. Fiftee

n days later, J

erry Canonie a

nd Don Helmboldt, officers of CEI, attended a board meeting of T EPSCO and reported that WGI was n

ot participating in the

transaction and wou

ld execute a waive

r of its right to do so. TE

PSCO acknowledg

ed the exercise of

the Option. On March 1, 1993, the scheduled closing d ate for purchase o

f the TEPSCO stock by

CEI, its repre sentatives attended the offices of TE PSCO, but failed to tender the

purchase price and

could not close the tra

nsaction. Two years later, on May 3, 1995, CEI/W GI sent a letter to TEPSCO attempting a se

cond time to exer

cise the right to acq

uire 25% interest i

n TEPSCO under the Option. By letter dated May 8, 1995, TEPSCO advised3

CEI/WGI tha

t such rights had term

inated pursuant to par

agraph six (6) of the Option. This action for a de

claratory j udgment was fi led by CEI/W

GI. The Complaint does not all ege separate or severab le rights as to the Op tion. Interestingly,

the Complaint a

lleges CEI/WG

I “ . . . ha ve properly and t

imely exercised their stock acquisition rights under The Option Agreement,” and that TEPSCO refu sed to perform its obligations. TEPSCO defended the action upon the premise that CEI an d WGI exercised the Opti

on for the agreed pur

chase price of $500, 000.00, with the transaction to be closed on or before March 1,1993. The defendant alleged that the plaintiffs rene

ged and failed to pay

the consideration,

resulting in a defau

lt of closure, thereby activating section 6(d) of the contract which provides that the Option may be exercised only one time. The Chancellor agreed and dismissed the action, but thereafter reconsidered and gr

anted the plaintiffs

specific perform

ance. Because w

e find the Chancellor wa

s correct the fir

st time, the j udgment is rever sed and the case is dismissed. Our review of the

findings of fact ma

de by the trial Court

is de novo upon the record of the tr

ial Court, accomp anied by a presumption of the correctnes s of the finding, unless the preponderance of the evidence is otherwise. T ENN . R. A PP . P., R ULE 13(d).. R. A PP . P., R ULE 13(d); Campbell v. Florida S teel Corp., 919 S.W.2d 26 (Tenn. 1996). Where there is no c onflict in the evidenc

e as to any material fact, the question on appeal is one of law, and the scope of review is de novo with no presumption of correctness accompanying a chancellor's conclusions of la w. Union Carbide Corp. v . Huddleston, 854 S.W.2d 87 (Te nn. 1993)

.4 The appellant correctly argues that a resolution of this case involves interpretation of t he Option, which is a matter o f law and not one of fact. Petty v. Sloane, 277 S.W.2d 355 (T enn. 1955). It is e

lementary that contracts m

ust be enforced according t o their terms. Pearsall Motors v. Regal ChryslerPlymouth, Inc., 521 S.W.2d 578 (T enn. 1975); Malone & Hyde Food Service v. Parson, 642 S.W.2d 157 (Tenn. App. 19 82). We agree with the appellant that the Option, by its c

lear and unambiguous terms, granted a single, unseverable right to acquire a 25% stock ownership in TEP

SCO to CEI/W

GI and limited

these optionees to a si

ngle exercise. The C

hancellor determ

ined, upon reconside

ration, that his fin

ding that the Option term

inated when the tra

nsaction failed to cl

ose was applicable

to CEI only, and

not to WGI. T

his conclusion ma

nifestly requir

es the presumpti

on that either

of these entities had exercisable rights. We are unable to agree, because there is no l

anguage in the Option t

o this effect, ei

ther directly o

r inferably. M

oreover, the evide

nce clearly r

evealed that the O

ption was held jointly by C

EI and WGI,

and that the repres entatives of these op tionees, at the January 21, 1993 b

oard meeting,

advised TEPSCO

that WGI acqui

esced in its exclus ion. The corpor ate minu tes refl ect and affirm th is fact . Signi ficant ly, none of the correspondence or documents generated after the January board meeting contains any reference to the involvement of WGI ; no witness testified that WGI was i

mproperly

excluded, and it wa

s stipulated that the C

harter of WGI had been revoked, with i ts business windi ng up. Again signifi cantly, WGI did not allege that it h

eld a separate or s everable right, a nd this issue was not raised at trial.5 We agree with the appellant that the only right created by the Option was the “non-assignable and non-transferable” right of CEI/WGI jointly to acquire a single, 25% stock inte

rest in TEPSCO , which right term inated when the transaction failed to close upon default of payment of the purchase price. The judgment

is reversed and the

case is dismisse

d at the costs of the appellees.

_______________________________ William H.

Inman, Senio

r Judge CONCUR:

_______________________________ Houston M. Goddard , Presiding Judge

_______________________________ Herschel P. Fr

anks, Judge