Court Opinion

ID: 8426176
Source: CourtListenerOpinion
Date Created: 2022-11-04 02:23:44.452579+00
Date Added: 2024-06-11T16:48:31.141957
License: Public Domain

GILMAN, Circuit Judge,
dissenting.
I disagree with the majority’s decision in this case because I believe that the disputed contract provision is ambiguous. Under Tennessee law, the interpretation of a contract provision ultimately deemed ambiguous by the court is a question of fact that must be submitted to a jury. And even if the provision at issue were not deemed ambiguous, I believe that the facts as set forth in the complaint state a legal basis upon which relief may be granted. I would therefore reverse the district court’s decision to grant Parkside’s motion to dismiss and remand the case for further proceedings.
I. Is the disputed contract provision ambiguous?
The Tennessee Supreme Court has explained that “[a] court’s initial task in construing a contract is to determine whether the language of the contract is ambiguous.” Planters Gin Co. v. Federal Compress & Warehouse Co., 78 S.W.3d 885, 890 (Tenn.2002). “A contract is ambiguous ... when it is of uncertain meaning and may fairly be understood in more ways than one.” Farmers-Peoples Bank v. Clemmer, 519 S.W.2d 801, 805 (Tenn.1975). If the language is ambiguous, then “a court applies established rules of construction to determine the parties’ intent. Only if ambiguity remains after the court applies the pertinent rules of construction does [the legal meaning of the contract] become a question of fact appropriate for a jury.” Planters Gin Co., 78 S.W.3d at 890 (quotation marks omitted) (modification in original).
In the present case, the disputed contract provision (Section 4.2) states in pertinent part:
*898[T]his Development Agreement shall terminate, solely at Owner’s election in its sole discretion, upon the happening of ... the sale or other transfer of all or substantially all of the Property. Such election to terminate this Development Agreement shall be made by written notice from Owner to Development Manager.
The majority opinion adopts one possible meaning of this provision, which is that “the sale of the property does not automatically terminate the agreement; instead, the decision to terminate by reason of those transfers rests solely with Parkside.” Maj. Op. at 895-96. In other words, “written notice from Owner to Development Manager” is a condition precedent to the termination of the agreement.
Another reasonable way to interpret the provision, however, as advocated by ASD, is to read the first and second sentences independently. Under this approach, the first sentence states the condition upon which the agreement terminates (“upon the happening of ... the sale or other transfer of all or substantially all of the Property”). The second sentence then imposes an independent duty upon Parkside to give ASD written notice of its decision to sell or transfer the property. This interpretation is consistent with the language in the second sentence stating that “[s]ueh election to terminate this Development Agreement shall be made by written notice.... ” If the parties had intended written notice to be a condition precedent to the termination of the agreement, they presumably would have written the second sentence this way: “Termination of this Development Agreement shall occur only upon written notice from Owner to Development Manager.”
Both interpretations find support in other provisions of the contract. As the majority opinion points out, the disputed provision. Section 4.2, also states that “[t]his Agreement shall automatically terminate upon the sale or transfer of all of the ownership interests of Carl Raff....” Maj. Op. at 894-95. The fact that the parties used the phrase “automatically terminate” in regard to a sale by Carl Raff but not in regard to a sale by Parkside suggests that a sale by Parkside does not by itself terminate the agreement. On the other hand, as discussed above, the disputed provision states that Parkside’s election to terminate the agreement “shall be made by written notice.” (Emphasis added.) If the parties had intended this to mean “termination shall occur only upon written notice.” they certainly knew how to say that. The preceding sentence, after all. states that “this Development Agreement shall terminate ... upon the happening of ... the sale or other transfer of all or substantially all of the Property.” (Emphasis added.) Thus, the text of the contract as a whole does not definitively support either interpretation.
Under Tennessee law, “[a]n interpretation which gives reasonable meaning to all of [the contract’s] provisions will be preferred to one which leaves a portion of the writing useless, meaningless, or inexplicable.” In re Pyramid Operating Authority, Inc., 144 B.R. 795, 814 (Bankr. W.D.Tenn.1992). The majority opinion asserts that ASD’s interpretation of the disputed provision “renders the clause ‘solely at Owner’s election in its sole discretion’ a nullity, or makes it a nonsensical reaffirmation that Parkside retained the right to sell the property and/or alter its corporate form.” Maj. Op. at 895. But the majority appears to overlook the legal effect of the “sole discretion” part of the clause, which is that Parkside’s decision to sell or transfer the property does not constitute a breach of either the contract or the implied covenant of good faith and fair dealing. The clause is thus neither a nullity *899nor nonsensical. Furthermore. I believe that the interpretation adopted by the district court violates the rule of contract interpretation set forth in In re Pyramid Operating Authority because it “leaves a portion of the writing ... inexplicable.” Common sense suggests that ASD did not intend to allow Parkside to sell the property and then escape all liability by simply refusing to provide ASD with written notice of the sale. The district court’s interpretation therefore leaves the entire termination provision inexplicable.
In conclusion, the disputed contract provision is ambiguous because it “is of uncertain meaning and may fairly be understood in more ways than one.” Farmers-Peoples Bank, 519 S.W.2d at 805. The “established rules of construction” cannot resolve the ambiguity because both possible interpretations are supported by some parts of the contract but potentially conflict with others. See Planters Gin Co., 78 S.W.3d at 890. Because “ambiguity remains after the court applies the pertinent rules of construction,” the meaning of the disputed provision is “a question of fact appropriate for a jury.” Id. The district court therefore erred by disposing of this case upon the defendants’ motion to dismiss.
II. Assuming that the disputed provision is not ambiguous, should the district court have granted the motion to dismiss?
As the previous discussion demonstrates. I believe that the district court’s interpretation of the disputed contract provision is incorrect. Even assuming, however, that the district court correctly decided that the contract is not ambiguous, dismissal was still not appropriate because the facts as set forth in the complaint state a legal basis upon which relief may be granted.
As discussed above, under the district court’s interpretation, “written notice from Owner to Development Manager” is a condition precedent to the termination of the agreement. Termination, in turn, is a condition precedent to Parkside’s duty to pay ASD the full 6% of development costs pursuant to Section 7.2 of the contract. Written notice, according to the district court, is therefore a condition precedent to Park-side’s duty to pay the full 6%. But “[i]t is basic contract law that a party who prevents the occurrence of a condition precedent may not stand on that condition’s non-occurrence to refuse to perform his part of the contract.” Swaback v. American Information Technologies Corp., 103 F.3d 535, 542 (7th Cir.1996) (citing Restatement (Second) of Contracts § 225, cmt. b (1981)).
This rule is similar to the equitable maxim that “equity regards as done that which ought to be done in fairness and good conscience,” which “means that equity will treat the subject matter, as to collateral consequences and incidents, in the same manner as if the final acts contemplated by the parties had been executed exactly as they ought to have been.” 27A Am. Jur.2d Equity § 116 (1996). In the present case, Parkside has unreasonably prevented the occurrence of the ministerial condition precedent by failing to provide ASD with written notice of the sale of the property, the sale clearly being the substantive event that terminated the contract. Parkside should therefore not be allowed to rely on the ministerial condition’s nonoccurrence as a basis to refuse to pay ASD the balance of the 6% fee.
III. Are the damages sought by ASD part of an unenforceable penalty clause?
One final issue is whether the damages that ASD seeks are valid liquidated dam*900ages or an unenforceable penalty. The majority opinion points out that “ASD seeks the full development fee as compensation for Parkside’s termination of the contract, even though ASD has not yet performed all the actions contemplated in consideration of that fee.” Maj. Op. at 897. The Tennessee Supreme Court has held that, in deciding whether a liquidated-damages provision is enforceable, a court must consider
the intentions of the parties based upon the language in the contract and the circumstances that existed at the time of contract formation. Those circumstances include: whether the liquidated sum was a reasonable estimate of potential damages and whether actual damages were indeterminable or difficult to measure at the time the parties entered into the contract.
Guiliano v. Cleo, Inc., 995 S.W.2d 88, 100-01 (Tenn.1999). We are not in a position to assess these factors without an adequate factual record. This case should therefore be remanded to the district court, where the parties would be able to develop the relevant evidence.
IV. Conclusion
For all of the reasons set forth above, I would reverse the district court’s decision to grant Parkside’s motion to dismiss and remand the case for further proceedings.