Court Opinion

ID: 1061058
Source: CourtListenerOpinion
Date Created: 2013-10-09 19:00:07.188897+00
Date Added: 2024-06-11T12:05:58.898693
License: Public Domain

January 22, 1996
                                           FOR PUBLICATION

              IN THE SUPREME COURT OF TENNESSEE

                           AT NASHVILLE

GUY ALEXANDER, JR., ROYCE       )
TAYLOR, AND SKYLINE             )
APARTMENTS PARTNERSHIP,         )
                                )
     Plaintiffs-Appellants,     )
                                )
                                )    Davidson Circuit
                                )
v.                              )    Hon. Barbara N. Haynes, Judge
                                )
                                )    No.   01S01-9411-CV-00147
                                )
THIRD NATIONAL BANK,            )
                                )
     Defendant-Appellee.        )

For Defendant-Appellee:              For Plaintiffs-Appellants:

Robert C. Goodrich, Jr.              W. Gary Blackburn
Farris, Warfield & Kanaday           David F. Gore
Nashville                            Blackburn & Slobey, P.C.
                                     Nashville
John C. Tishler
Nashville                            John D. Melton, III
                                     Murfreesboro

                           OPINION
COURT OF APPEALS REVERSED;
CASE REMANDED TO TRIAL COURT.                      REID, J.
          This case presents for review the decision of the

Court of Appeals sustaining the defendant's motion for summary

judgment on the ground the suit is barred by the three year

statute of limitations.     This Court finds the essential cause of

action alleged is breach of contract rather than injury to

property and, therefore, the applicable limitation period is six

years rather than three years.1

                                   I.

           For the purposes of this appeal, the circumstances of

the case, including the course of the negotiations between the

parties Guy Alexander, Jr. and Royce Taylor, d/b/a The Skyline

Apartments, a general partnership, and the Third National Bank,

are not disputed.    The plaintiff became the purchaser of The

Skyline Apartments located in Gallatin, Tennessee.          The

      1
       Tenn. Code Ann. § 28-3-105(1) (Supp. 1995) provides, "The
 following actions shall be commenced within three (3) years from the
 accruing of the cause of action: (1) Actions for injuries to
 personal or real property." Tenn. Code Ann. § 28-3-109(a)(3) (1980)
 provides, "The following actions shall be commenced within six (6)
 years after the cause of action accrued: . . . (3) Actions on
 contracts not otherwise expressly provided for."

                                   -2-
apartments were encumbered by a deed of trust securing a loan in

the approximate amount of $250,000 due Sovran Bank and one or

more debts due the sellers which were secured by liens on the

property.   The defendant bank agreed to loan the partnership

$650,000.   The proceeds of the loan were to be used to pay the

debts that were liens against the property and to renovate the

apartments.   A deed of trust on the apartments securing a loan

in that amount was prepared and executed, but it was not

recorded.

            The plaintiff had difficulty obtaining a release or

subordination agreement from the sellers, who had transferred at

least one of the secured debts to the Goodlettsville Bank.   In

the meantime, Third National Bank began making unsecured

advances so that the partnership could commence renovation of

the apartments.   The partnership ultimately obtained from the

bank loans in the amount of $350,000, the proceeds of which were

used to improve the apartments.   The partnership was not able to

obtain a recordable subordination agreement from the prior

owners.   When the bank stopped making advancements, the property

was still encumbered by the Sovran Bank deed of trust and liens

securing the former owners.

            The bank then removed the page of the executed deed

of trust containing the signatures of the parties, attached that

                                -3-
page to a deed of trust securing a loan of $350,000, and

recorded the deed of trust at the register's office.   The bank

contends that the plaintiff consented to this action; the

partnership denies that it consented.

          The bank foreclosed the recorded deed of trust, the

apartments were sold pursuant to the foreclosure, and Guy

Alexander, Jr., personally, and the partnership filed bankruptcy

proceedings.

                               II.

          The complaint charges breach of contract, breach of

"implied duty of good faith and fair dealing," "fraudulent

and/or negligent misrepresentation," and fraud.   The plaintiff

alleges as damages:   additional costs of renovation caused by

the delay in obtaining even partial financing from the

defendant; additional interest expense caused by an increase in

interest rates; lost rent as a result of the delay in completing

renovations; and loss of its equity in the apartments caused by

its inability to find substitute financing.   The plaintiff does

not allege any damage to the property itself.

          In defense, Third National Bank denied the violation

of any duty or obligation due the plaintiff and affirmatively

                               -4-
pled the one year statute of limitations, the three year statute

of limitations, waiver, estoppel, and laches.   It also filed a

counter-claim against the plaintiff and the partners

individually for the balance due on the loans made to the

partnership.

                               III.

           The plaintiff contends that the suit is an action for

breach of contract, governed by Tenn. Code Ann. § 28-3-

109(a)(3), the six year statute of limitations.   The defendant

contends it is an action for injury to property, governed by

Tenn. Code Ann. § 28-3-105, the three year statute of

limitations.

           Whether the cause of action alleged is ex contractu

or ex delicto is not determinative of the applicable statute of

limitations.   Bland v. Smith, 197 Tenn. 683, 277 S.W.2d 377, 379

(1955).   This Court stated in Pera v. Kroger Co., 674 S.W.2d
715, 719 (Tenn. 1984):   "It is well settled in this state that

the gravamen of an action, rather than its designation as an

action for tort or contract, determines the applicable statute

of limitations."

                               -5-
          The issue before the Court is determined by the

decision in Farabee-Treadwell Co. v. Union & Planters' Bank &

Trust Co., 135 Tenn. 208, 186 S.W. 92 (1916).   In that case, the

complaint alleged that the defendant bank agreed to loan $10,000

to the plaintiff to pay for the purchase of corn upon delivery

to the bank of a note secured by a lien on the corn.    On the day

a portion of the corn was delivered the plaintiff applied to the

defendant for part of the loan.   The defendant admittedly

breached the contract by refusing to loan the money, and the

plaintiff was forced to sell the corn and other commodities on

the open market at a loss.   The plaintiff sued the bank for the

lost profit and also for injury to the plaintiff's credit.   In

determining the damages to which the plaintiff was entitled, the

Court discussed whether the suit was in contract or tort.

               There has been much discussion in the
          case as to whether this was an action upon
          the contract or in tort. The Court of
          Civil Appeals took the view that it was a
          suit in tort, and that plaintiff was
          accordingly entitled to recover all damages
          it sustained growing out of the tort, which
          that court thought included every item of
          damage set out in the declaration
          aforesaid.

               We are unable to agree with the
          conclusion of the Court of Civil Appeals
          that this can be treated as a case in tort.

                               -6-
Id. at 93.    The Court held that the complaint stated a cause of

action for breach of contract and stated further:

                  If the plaintiff is able to establish
             upon a trial of the case that it did have
             such contract as charged, and that the bank
             breached it under the circumstances
             detailed in the declaration, and that
             plaintiff did not have time after the loan
             was refused to procure funds elsewhere in
             order to meet its obligation, then under
             such circumstances we think the bank is
             liable to the plaintiff for the special
             damage claimed. That is to say, the bank
             is liable for the loss plaintiff suffered
             by reason of the necessity of making a
             forced sale of this corn. Such loss
             naturally and proximately followed the
             bank's breach of contract under the
             circumstances alleged, and was a loss
             necessarily within the contemplation of the
             parties under the peculiar contract
             averred.

Id. at 94.

             A review of the facts in the case before the Court

shows that, as in the Farabee-Treadwell case, there has been no

injury to the property, but rather interference with the

plaintiff's anticipated economic gain from the use of the loan

proceeds.    The substance of the allegations is that the bank

refused to make a loan in the amount and on the terms

contemplated by the parties.    All of the alleged wrongs

committed by the defendant were incidental to the bank's making

                                 -7-
a $350,000 loan rather than a $650,000 loan.    Even the

fabrication of the deed of trust which was recorded and

foreclosed, and alleged by the plaintiff to constitute fraud,

was an aspect of the bank's limiting the amount of the loan.

Also, the alleged misrepresentations related to the bank's

refusal to loan the larger amount.     The damages alleged also

indicate the gravamen of the suit to be breach of contract.       The

plaintiff complains of additional costs of renovation, increase

in the interest rate, and loss of rent.    The defendant's

counter-claim for the loan made indicates the cause of action is

breach of contract rather than a tort action for damage to

property.    Here, neither the value of the property nor the

plaintiff's interest in the property was diminished by the

failure to loan the money; those values were not affected by the

alleged breach of contract.    Consequently, there was no damage

to property or to an interest in property.

             The bank relies upon Vance v. Schulder, 547 S.W.2d
927 (Tenn. 1977), in which the Court held that the applicable

statute of limitations was three years in a suit based on the

claim that the sale of the plaintiff's stock for less than its

full value was induced by the fraudulent representations of the

defendant.    In that case a minority stock holder sued the

directors of the company, alleging that the directors'

misrepresentations regarding the value of the plaintiff's stock

                                 -8-
resulted in the plaintiff selling his stock at less than its

fair value.   The Court found that:

               [T]he gravamen of the present case is
          fraud in the inducement of a contract, the
          old common law action of deceit. Plaintiff
          alleges damages resulting from face to face
          misrepresentations of material facts which
          induced him to sell his stock at a much
          lower figure than reasonable.

Id. at 931.   The Court held the claim was grounded in the tort

of deceit, for which the statute of limitations is three years.

In that case, the value of the plaintiff's interest in the stock

was affected by the defendant's deceit.   That decision is not

inconsistent with the finding in the instant case that the

gravamen of the complaint is breach of contract.

          Nor does the decision of the Sixth Circuit Court of

Appeals in Cumberland & Ohio Co. v. First Am. Nat'l. Bank, 936
F.2d 846 (6th Cir. 1991), cert. denied, 502 U.S. 1034 (1992),

support the defendant's position in this case.   That court,

interpreting Tennessee law, held that the three year statute

applied to a suit for damages incurred because the plaintiff was

forced by the defendant bank, pursuant to a financing agreement,

to sell property for less than its fair value.   The court found

the substance of the alleged wrong, economic duress, was

indistinguishable from deceit and that the suit was barred by

                               -9-
the three year statute of limitations.    In that case also, the

value of the plaintiff's interest in the property sold was

affected by the defendant's wrongful act.

             Because the Court finds the six year statute

applicable, discussion of the plaintiffs further contention that

the running of the three year statute was tolled is not

addressed.

             The judgment of the Court of Appeals is reversed, and

the case is remanded to the trial court.

             Costs are taxed against Third National Bank.

                                _____________________________
                                Lyle Reid, J.

Concur:

Anderson, C.J., Drowota, Birch, and
     White, JJ.

                                -10-