Court Opinion

ID: 4173399
Source: CourtListenerOpinion
Date Created: 2017-05-31 22:15:15.342705+00
Date Added: 2024-06-11T14:38:44.609919
License: Public Domain

05/31/2017

               IN THE COURT OF APPEALS OF TENNESSEE
                           AT NASHVILLE
                              January 18, 2017 Session

TRANSFILL EQUIPMENT SUPPLIES & SERVICES, INC. v. ADVANCED
                MEDICAL EQUIPMENT, LLC

               Appeal from the Circuit Court for Sumner County
     Nos. 83CC1-2013-CV-1241, 83CC1-2013-CV-1242 Joe Thompson, Judge
                   ___________________________________

                          No. M2016-00288-COA-R3-CV
                      ___________________________________

In this breach of contract case, Transfill Equipment Supplies & Services, Inc. (TESS)
sued Advanced Medical Equipment, LLC (AME) for delinquent payments of (1) rent due
on TESS’s equipment, (2) purchases of medical oxygen, and (3) the fair market value of
rented equipment that AME had not returned to TESS. AME filed a separate lawsuit
against TESS seeking damages for conversion of oxygen tanks. After consolidating the
cases, the Sumner County General Sessions Court awarded damages to TESS and
dismissed all of AME’s claims. AME appealed to the trial court. The court found that
AME was guilty of breach of contract due to its failure to make timely payments. As a
consequence, the court awarded judgment to TESS in the amount of $34,999.45. The
trial court also found that TESS had not converted AME’s oxygen tanks. AME appeals.
We affirm.

       Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
                            Affirmed; Case Remanded

CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which ANDY D.
BENNETT and W. NEAL MCBRAYER, JJ., joined.

Clement J. Carlton, Huntsville, Alabama, and Walter Stubbs, Gallatin, Tennessee, for the
appellant, Advanced Medical Equipment, LLC.

Arthur E. McClellan, Gallatin, Tennessee, for the appellee, Transfill Equipment Supplies
& Services, Inc.

                                      OPINION
                                             I.

        TESS is engaged in the business of filling tanks with medical oxygen, as well as
renting and selling oxygen tanks for medical use. AME provides already filled oxygen
tanks for patients with respiratory needs. TESS and AME commenced doing business
under the terms of a written pricing contract executed by AME on September 30, 2004.
The contract establishes the prices for filling various sizes of oxygen tanks, the prices for
renting oxygen tanks, and delivery fees. The contract also provides that, in case of
litigation, “[t]he prevailing party shall be awarded its costs and legal fees.” The contract
contains the following provision:

              Replacement Cost for the Rental Cylinders and
              Equipment if lost will be Market Replacement Price, and
              Rental Charges continue until Equipment and Cylinders
              are returned o[r] purchased at Market Value.

(Bold font in original.) The parties operated under this contract until May 3, 2010, when
the parties executed a new contract that adjusted the prices.

       During the course of the business relationship, AME would provide TESS with
AME’s own tanks and AME would pay for the oxygen to fill the tanks. AME also rented
tanks from TESS. AME paid rental charges and also paid for the medical oxygen
provided by TESS. In addition to delivering filled tanks to AME, TESS would pick up
its empty rental tanks and the AME tanks to be filled. TESS provided a delivery ticket to
AME. The delivery ticket, signed by the TESS driver and by AME, contains the
following language: “[b]y signing this delivery ticket, I agree that all items and
quantities are correct.” (Bold font in original.) In addition to the delivery ticket, TESS
provided AME with a distribution log specifying the size, type, and number of tanks that
were delivered.

      When the delivery vehicle arrived back at the TESS facility, TESS verified the
accuracy of the information on the delivery ticket. David Graves, TESS’s president and
CEO, testified regarding this process as follows:

              [E]very time a truck goes out and makes a delivery,
              somebody other than a driver goes on and reverifies every
              cylinder on that truck. . . . [T]here are times that deliverers
              will pick up a tank and pick up a customer tank that should
              have been a rental. They’ll pick up a rental tank that was a
              customer’s tank. That’s the whole purpose in verification.
              There are times that they’ll go in and pick up cylinders, and
              . . . there are times there may be 20 and they say there’s 19.
              And if there is, we correct the delivery ticket, fax a copy back
                                            -2-
             to the customer, and we bill off of the corrected delivery
             ticket before it’s there when it gets back in our facility, if
             there’s an error[.]

       AME asserts that this verification process has led to overbilling by TESS and,
further, that TESS has converted AME-owned tanks through this process. Furthermore,
AME claims that this verification process at the TESS facility indicates that TESS has
conducted its business with AME in bad faith, unfairly, or in a commercially
unreasonable manner.

        Because TESS fills both customer-owned tanks and its own tanks that are rented
to customers, TESS must differentiate between its tanks and those of AME for accurate
billing. Graves testified regarding how TESS differentiates between tanks. He stated
that

             TESS rental cylinders are very clearly marked. They either
             have “TESS” spray painted down the side of them and they
             have a green ring spray-painted at the very bottom of them or
             else they’ve got our logo under the clear coat of the cylinders.
             And our steel tanks have TESS neck rings on the top of them
             they say “property of the TESS Company, Gallatin,
             Tennessee.” . . . They are clearly identified.

        The record reflects that it is common in the medical gas industry for tanks to be
lost. Graves testified about this problem, stating that in “the durable medical equipment
industry and the home oxygen equipment, it is an accepted standard that [tanks] are lost.
. . . They’re constantly lost. In the industry, . . . tanks don’t always come back to the
home care company that puts them out on the patients.” AME acknowledged this
problem when it questioned Graves at trial. AME’s counsel asked Graves whether he
had “told [AME] that the average loss in the industry, for rental tanks, is 17 percent per
year[.]” Suffice it to say that both parties agreed that it is common in the industry for
tanks to become lost.

      Early in the business relationship, AME struggled to keep its payment account
with TESS current. Graves testified that

             [f]rom the day this account opened in 2004, they have been
             delinquent. There have been phone calls, credit holds, trying
             to get payment and everything else.”

In October 2007, TESS notified AME that it was placing a hold on AME’s account and
that it would cease doing business with AME until the delinquency on the account was
resolved. AME responded with a proposed payment plan under which it would pay
                                         -3-
$4,000 and then would set up weekly payments of $1,000. AME made the $4,000
payment, and business between the parties resumed. Subsequently, AME continued to
have trouble making timely payments to TESS. In September 2008, Graves sent a letter
to AME regarding the growing past due balance on AME’s account, stating that the
balance on the account was $30,046.54 with $27,995.29 past due. He also claimed that
AME still had equipment rented to AME with a replacement value of $22,646. In that
letter, Graves notified AME that its account was being put on hold until a payment
arrangement could be reached. Business between the parties recommenced after AME
made a payment to TESS. In February 2010, a payment that AME made to TESS in the
amount of $500 was returned for insufficient funds. As a result, TESS again placed
AME’s account on hold. TESS ceased doing business with AME on June 5, 2012.

        TESS pressured AME to make arrangements to pay the balance on its account.
AME expressed concerns over the balance due, questioning the validity of the number of
outstanding rental tanks for which it was being charged. AME made some payments on
its balance, but failed to bring its account current. In a September 2012 email to TESS,
AME asked if TESS could “please try to make a decent offer . . . to settle the equipment
issue. I would like to be fair.” In October 2012, Graves provided AME with the number
of and types of rental tanks that had not been returned and an amount for which TESS
was willing to settle the equipment charges. He also scheduled a meeting with AME to
review all of the delivery tickets and the charges for outstanding rental tanks. In
November 2012, TESS provided AME with its business records detailing AME’s account
balance in an attempt to resolve the parties’ disagreement.

       This matter was not resolved. AME remained in a delinquent status. In December
2012, counsel for AME sent a letter to TESS asserting that AME-owned tanks that TESS
had picked up for filling had not been returned, and he demanded the return of such
tanks. Counsel for TESS responded with a letter demanding payment of AME’s account
balance by January 8, 2013.

       On January 10, 2013, TESS filed a civil warrant against AME in the Sumner
County General Sessions Court seeking damages for breach of contract on a sworn
account. TESS claimed that AME owed payments for medical gas provided by TESS,
rent on TESS tanks, and the replacement cost for TESS-owned tanks that had not been
returned. AME disputed the amount of TESS’s claim. AME filed a sworn denial stating
that

             [t]here [are] multiple errors and changes made by TESS upon
             documents it uses. I cannot authenticate or dispute Delivery
             Tickets without the originals. I will not agree to use copies at
             a trial. The [audit] is unreliable. TESS never provided a
             complete history of payments by AME to verify a claimed
             balance owed.
                                            -4-
       AME filed a separate action in the same court against TESS alleging conversion of
personal property. The Sumner County General Sessions Court consolidated the cases.
It dismissed AME’s conversion claim and awarded $18,094 in damages to TESS for
breach of contract and $4,099.50 in attorney’s fees.

       AME appealed to the trial court. In awarding TESS a judgment, the court made
extensive findings of fact:

             TESS entered into a contract with [AME] on September 24,
             2004 (the “2004 Agreement”).

             The parties operated under the 2004 Agreement until they
             executed a new contract on May 3, 2010 (the “2010
             Agreement”). The 2010 Agreement was very similar to the
             2004 Agreement, with only minor price adjustments.

                                 *      *      *

             Significantly, both the 2004 Agreement and the 2010
             Agreement contained the following provision:

                    Replacement Cost for the Rental Cylinder and
                    Equipment if lost will be Market Replacement
                    Price, and Rental Charges continue until
                    Equipment and Cylinders are returned or
                    purchased at Market Value.

             The 2004 and 2010 Agreements each contained an attorney’s
             fee provision that awarded “costs and legal fees” to the
             prevailing party in the event of a dispute.

             As far back as October 15, 2007, AME experienced difficulty
             in keeping its account current. At that time, David Graves, on
             behalf of TESS, notified Joy Cartron, [(AME’s owner) and]
             his principal contact at AME, that a credit hold was being
             placed on AME’s account.

             Ms. Cartron responded shortly thereafter with a promise to
             bring the account current by mailing an initial payment of
             $4,000 and thereafter making weekly payments of $1,000
             each.

             Again as of September 24, 2008, AME had become
                                   -5-
delinquent on its account with TESS, owing at a time a total
of $30,046.54, of which $27,995.29 was past due. In
addition, AME then had in its possession a number of rental
cylinders, which cylinders carried an aggregate fair market
value of $23,646[].

                    *      *         *

On February 22, 2010, TESS deposited a payment from AME
in the amount of $500. Three days later, the check was not
honored by AME’s bank and was returned for insufficient
funds.

As a result of the returned check, TESS sent a letter to AME
once again placing AME on credit hold. In addition, TESS
required AME to make all future payments in certified funds.
TESS also noted in the letter that it would “continue to pick
up the TESS rental cylinders to help reduce the amount your
company is invoiced.”

Despite these difficulties, TESS continued its business
relationship with AME and continued to deliver gases to
AME under the terms of the 2004 and 2010 Agreements.

After execution of the 2010 Agreement, David Graves
traveled to Alabama to meet with representatives of AME to
talk about ways in which AME could reduce its cylinder
rental charges.

                    *      *         *

TESS stopped doing business with AME on May 1, 2012,
when AME last took possession of a rental cylinder owned by
TESS.

On August 22, 2012, TESS, through Margaret Graves
[(TESS’s credit manager)], initiated an email exchange with
AME regarding the overdue state of AME’s account. That
led to an email from Andrew Thompson [(AME’s office
manager)] to Margaret Graves, questioning the accuracy of
TESS’s claim that AME was still in possession of between
“100-200 or more” of TESS’s rental tanks.

                               -6-
On September 7, 2012 – the day after AME raised concerns
about the number of rental tanks that TESS claimed were in
AME’s possession – AME sent a payment of $1,000 to TESS.

Three days later, David Graves contacted Andrew Thompson
by phone to discuss possible discrepancies between TESS and
AME with respect to missing rental tanks. By email dated
September 11, 2012, Margaret Graves referenced the phone
conversation between David Graves and Andrew Thompson.

AME did not respond to TESS’s September 11, 2012 email.

On September 18, 2012, Margaret Graves at TESS emailed
Andrew Thompson at AME, requesting a payment on AME’s
overdue account. Thompson responded within 4 hours,
stating: “Shouldn’t be a problem by end of month.”
Thompson made no reference to the issue of disputed rental
tanks.

[O]n September 19, 2012, Joy Cartron emailed Margaret
Graves, seeking a resolution to the disputed tanks issue.
Cartron indicated that she “would like to continue to do
business,” and asked Graves: “Can you please try to make a
decent offer with me to settle this equipment issue.”
Moreover, Cartron was reluctant to undertake her own review
of the rental tank history, indicating she would only do so if
she had to.

                    *      *      *

On October 18, 2012, David Graves notified Joy Cartron that
he would be working on the AME account to address the
situation of “lost cylinders.” Joy Cartron responded the same
day and was silent with respect to David Graves’
characterization of the cylinders as “lost.”

On the following day, October 19, 2012, David Graves
notified AME that TESS would charge AME for the lost
rental cylinders.

On the following day, Joy Cartron admitted that customers of
AME had kept many of the rental tanks, and that she needed
tracking numbers to see if she could charge the replacement
                            -7-
             cost to those customers.

             On October 30, 2012, David Graves offered to travel to
             Huntsville, Alabama to meet with Joy Cartron to “go through
             all the delivery tickets.”

              . . . Joy Cartron responded “sounds good,” indicating that she
             could “at least find out by my log who has tanks and try to get
             them back or charge the price to them.”

             The parties mutually scheduled a meeting for November 20,
             2012 at 10:30 AM in Huntsville, Alabama. On November 20,
             Joy Cartron chose not to attend the meeting, instead sending a
             subordinate, Whitney Cato, to attend the meeting.

             AME continually had difficulty in maintaining its records in a
             professional, business-like manner.

             TESS properly billed AME for gases, tank rental, and tank
             purchases.

             At the time when TESS terminated its relationship with
             AME, AME owed TESS the sum of $10,253.45 for purchases
             of gas and tank rental, and $7,841[] for the fair market value
             of TESS tanks retained by AME.

             The court explicitly finds the testimony of David Graves and
             Margaret Graves to be consistent and credible. Conversely,
             while the court does not find the testimony of Joy Cartron to
             be purposefully untruthful, the court finds her testimony to be
             wholly unreliable.

(Paragraph numbering and citations to exhibits in original omitted.) The court concluded
that “AME breached its contract with TESS by failing to make timely payments when
due.” The court held that TESS is entitled to recover (1) $10,253.45 for purchase of
gases and rental of tanks; (2) $7,841 for fair market value of TESS tanks in the
possession of AME; and (3) $16,905 in attorney’s fees. The court’s award totaled
$34,999.45. Furthermore, in its final order, the court found that TESS did not convert
AME’s tanks. AME appeals.

                                           II.

      AME raises the following issues as quoted verbatim from its brief:
                                         -8-
             Did the trial court fail to adhere to the mandate of Tenn. R.
             Civ. P., Rule 52.01 by failing to make findings of fact and
             separate legal conclusions for every issue presented during
             the trial court proceedings?

             Does the evidence preponderate to establish TESS has
             converted oxygen cylinders (tanks) because the evidence
             supports another finding of fact with greater convincing effect
             than the trial court’s legal conclusion that TESS did not
             convert AME tanks?           Said another way, Does the
             preponderance of evidence establish the elements of
             conversion of AME’s oxygen cylinders (tanks) by TESS?

             In its course of business dealings with AME, has TESS dealt
             in bad faith, unfairly, or in a commercially unreasonable
             manner?

(Paragraph numbering in original omitted.)

                                             III.

       When, as here, the trial court sits without a jury, we review the trial court’s
findings of fact in the record with a presumption of correctness, and we will not overturn
those factual findings unless the evidence preponderates against them. Tenn. R. App. P.
13(d); Armbrister v. Armbrister, 414 S.W.3d 685, 692 (Tenn. 2013). We review a trial
court’s conclusions of law under a de novo standard with no presumption of correctness
attaching to the trial court’s legal conclusions. Campbell v. Florida Steel Corp., 919
S.W.2d 26, 35 (Tenn. 1996); Union Carbide Corp. v. Huddleston, 854 S.W.2d 87, 91
(Tenn. 1993).

                                             IV.

                                             A.

      AME argues that “the trial court’s Memorandum and Final Order [are] insufficient
to meet the mandates of Rule 52.01.” That rule provides as follows:

             In all actions tried upon the facts without a jury, the court
             shall find the facts specifically and shall state separately its
             conclusions of law and direct the entry of an appropriate
             judgment. . . . If an opinion or memorandum of decision is
             filed, it will be sufficient if the findings of fact and
             conclusions of law appear therein.
                                           -9-
The Supreme Court has stated the following with regard to the sufficiency required:

              There is no bright-line test by which to assess the sufficiency
              of factual findings, but “the findings of fact must include as
              much of the subsidiary facts as is necessary to disclose to the
              reviewing court the steps by which the trial court reached its
              ultimate conclusion on each factual issue.”

Lovelace v. Copley, 418 S.W.3d 1, 36 (Tenn. 2013) (internal citations omitted).

      With regard to a court’s failure to make sufficient findings, the Supreme Court has
previously found that

              [o]ne remedy courts typically apply when a trial court’s
              factual findings fail to satisfy the Rule 52.01 requirement is to
              remand the case to the trial court with directions to issue
              sufficient findings and conclusions.           Alternatively, an
              appellate court may choose to remedy the trial court’s
              deficient factual findings by conducting a de novo review of
              the record to determine where the preponderance of the
              evidence lies.

Id. (internal citations omitted).

       In its brief, AME states the following:

              [H]ere is what AME contends makes the trial court’s
              Memorandum and Final Order insufficient to meet the
              mandates of Rule 52.01. The most compelling reason is
              because TESS used delivery tickets to determine the billing it
              would submit to AME for filling tanks, transportation of the
              tanks, and, more importantly, the rental of tanks. . . . The
              specific words “credits” and “delivery tickets” do not even
              appear in the Memorandum or the Final Order filed by the
              trial court. . . . The trial court made no findings regarding the
              ability or inability of TESS delivery persons to identify and
              distinguish tanks owned by each of the parties. . . . The trial
              court rendered no factual finding or legal conclusion to
              determine ownership of all the tanks unilaterally shifted by
              TESS so that it could claim ownership.

We are not persuaded by this argument. The fact that the trial court did not use the words
“credits” or “delivery tickets” does not render the factual findings insufficient. Rule
                                         - 10 -
52.01 provides that an opinion “will be sufficient if the findings of fact and conclusions
of law appear therein.” The fact that the trial court did not use specific language in its
recitation of the facts and did not find the facts as AME believes it should have does not
render the trial court’s findings to be insufficient.

        The trial court found that AME was attempting to track TESS rental tanks that it
had provided to customers so that it could charge the replacement costs to those
customers. It also found that AME was attempting to settle the issue of missing tanks
with TESS and that AME had an issue maintaining its business records. According to the
trial court, TESS properly billed AME and that “[a]t the time when TESS terminated its
relationship with AME, AME owed TESS the sum of $10,253.45 for purchases of gas
and tank rental, and $7,841[] for the fair market value of TESS tanks retained by AME.”
These facts are sufficient to support the trial court’s legal conclusions that AME breached
the contract with TESS and that TESS did not convert AME tanks.

       AME also challenges the court’s award of damages, arguing that “AME and the
court of appeals cannot determine how the trial court arrived at its award of damages
favoring TESS.” It argues that “[t]he damages awarded by the trial court are not capable
of reasonable interpretation [and that the] trial court completely ignored the issue of
credits, both factually and legally.” We disagree.

       While there is some question as to the process the trial court used in calculating its
award of damages and its application of credits, we do not find that the evidence
preponderates against the trial court’s award. We have previously stated the following
with regard to damages:

              The amount of damages to be awarded is a question of fact.
              The amount of damages appropriate in a particular case
              depends on the particular situation, and, thus, determinations
              concerning the amount of damages are factually driven.
              Consequently, . . . the standard of review of the amount of
              damages awarded by a trial court sitting without a jury is the
              standard generally applicable to appellate review of findings
              of fact. Under that standard, we review the record de novo
              and afford the trial court’s findings of fact a presumption of
              correctness unless the evidence preponderates otherwise.

Wisdom v. Carder, No. M2005-02207-COA-R3-CV, 2007 WL 595530, at *2 (Tenn. Ct.
App., filed February 26, 2007) (internal citations omitted). Thus, we hold that the trial
court’s damages calculation is correct unless the evidence preponderates against its
award. The trial court had hundreds of pages of delivery tickets with thousands of entries
and the records regarding TESS’s billing of AME to review. Based on its review of the
record, the court awarded judgment to TESS in the amount of $34,999.45. The burden is
                                         - 11 -
on AME to demonstrate to this court that the evidence preponderates against that finding.
This it has failed to do. AME has also failed to pay the balance claimed by TESS. It has
also failed to demonstrate its calculation as to what it claims TESS is entitled. Based on
the trial court’s review of the voluminous record before it, the trial court calculated and
awarded damages awarded to TESS. Simply stated, the evidence does not preponderate
against the trial court’s damage award.

        AME’s argument that the trial court completely ignored the issue of credits is also
without merit. It is clear from the trial court’s award that the court provided some credits
to AME. In TESS’s response to alleged delivery discrepancies or defects, TESS asked
the court for $42,594.31. TESS’s motion to alter and/or amend asked for an increase in
the trial court’s award to $43,884. Since the court’s award of $34,999.45 is significantly
less than the amount TESS requested, it is logical to assume that the court awarded AME
some offsetting credits. We find that, while it is not entirely clear how the trial court
calculated the sum it awarded, the evidence does not preponderate against the trial court’s
factually-driven determination of damages.

                                             B.

       AME argues that the trial court erred in finding that TESS had not converted AME
tanks. In the trial court’s memorandum and order, it specifically found that David
Graves’s testimony was “consistent and credible” while it found that Joy Cartron’s
testimony was “wholly unreliable.” In the trial court’s final order, the court noted that it
“affirmatively finds through its determination as to the credibility of the witnesses, as
well as, through the preponderance of the evidence presented, both documentary and oral,
that [AME] breached its contract with [TESS] and, that [TESS] did not convert [AME’s]
tanks.” The trial court’s credibility determination is accorded great weight. The
Supreme Court has stated the following:

              Unlike appellate courts, trial courts are able to observe
              witnesses as they testify and to assess their demeanor, which
              best situates trial judges to evaluate witness credibility. Thus,
              trial courts are in the most favorable position to resolve
              factual disputes hinging on credibility determinations.
              Accordingly, appellate courts will not re-evaluate a trial
              judge’s assessment of witness credibility absent clear and
              convincing evidence to the contrary.

Wells v. Tennessee Bd. of Regents, 9 S.W.3d 779, 783 (Tenn. 1999). In the case before
us, the trial court explicitly gave weight to the credibility of the witnesses in determining
that TESS had not converted AME’s tanks. Based on this credibility determination and
the evidence presented, the trial court concluded that TESS had not converted AME’s
tanks.
                                             - 12 -
       To be successful in an action for conversion, a party must prove the following:
“(1) an appropriation of another’s tangible property to one’s use and benefit; (2) an
intentional exercise of dominion over the chattel alleged to have been converted; and (3)
defiance of the true owner’s rights to the chattel.” White v. Empire Exp., Inc., 396
S.W.3d 696, 720 (Tenn. Ct. App. 2012). Furthermore, “[t]o state a cause for
misappropriation or conversion, under Tennessee Rule of Civil Procedure 9.02, [AME]
would need to plead all acts of misappropriation with particularity.” PNC Multifamily
Capital v. Bluff City, 387 S.W.3d 525, 555 (Tenn. Ct. App. 2012).

        In its action against TESS, AME’s warrant claimed “conversion of personal
property[,] i.e. D cylinders, M6 cylinders, and E cylinders in the amount of twelve
thousand five hundred ($12,500[] ) dollars.” In the trial memorandum filed in the court
by AME on the day before the court issued its memorandum opinion and order, AME
concluded that “[t]he computation of the known converted tanks should include not only
the tanks unilaterally transferred by TESS from 2005 through 2012, but also obvious
errors in the audit . . . and the undelivered . . . tanks.” It claimed a total market value of
converted tanks of $12,802.07. These assertions, however, fail to prove the elements of
conversion or the existence of “known converted tanks.” In its trial memorandum, AME
admits that it “tracked the tanks it owned by serial number.” AME claims that TESS
converted 46 tanks in 2005 and 164 tanks in 2006. Rather than providing evidence of its
tracking of the specific tanks which it asserts TESS took and never returned, AME
simply asserts that every alteration of the delivery tickets by TESS resulted in the
conversion of those tanks. The trial court specifically found that “AME had difficulty in
maintaining its records in a professional, business-like manner.” The lack of such
records has left AME unable to come forth with specific facts to establish its claim for
conversion.

        Additionally, the trial testimony lacks any specific facts of the alleged conversion
of AME tanks. While the trial testimony and the record demonstrate the fact that delivery
tickets were altered through the verification process at TESS’s facility, it fails to establish
that this verification process actually resulted in the conversion of any AME tanks. AME
did not come forward with facts demonstrating the essential elements of conversion.
Instead, it asserted nothing more than an assumption that TESS used its verification
process to convert AME tanks.

       On appeal, AME asserts that “[t]o show conversion AME took the top sheet
(white) of specific delivery tickets and the gold sheet, left by the TESS driver with AME
to show the discrepancies and defects in the way TESS not only billed AME, but also
makes claim for the market value of unreturned tanks.” This demonstrates that TESS
engaged in a verification process and audited its records to correct defects, but it does not
prove conversion. AME cannot demonstrate that TESS has any AME tanks in its
possession, yet it claims that TESS has converted hundreds of tanks. This claim is not
                                            - 13 -
supported by the record before us.

        At trial, AME did not dispute that it is possible for tanks to become lost. Marsha
Bain, an AME employee, testified that part of her responsibility was getting outstanding
tanks back from patients. She testified that she would try to locate patients with
outstanding tanks and that missing tanks not returned by patients is indeed a problem.
The testimony at trial demonstrates that it is a clear problem in the industry for tanks to
become lost. As previously noted, counsel for AME even acknowledged the fact that
“the average loss in the industry, for rental tanks, is 17 percent per year.” Instead of
accepting that some of its tanks are missing due to the general problem in the industry of
tanks becoming lost and patients not returning them, AME seeks to hold TESS
accountable for hundreds of tanks that were subject to TESS’s auditing process. This is
not proof of conversion. We hold that AME has failed to prove the essential elements of
its claim for conversion.

                                            C.

       In its brief, AME correctly notes that there is an implied duty of good faith and
fair dealing in every contract. The Supreme Court quoted TSC Industries v. Tomlin, 743
S.W.2d 169, 173 (Tenn. Ct. App. 1987) with approval, holding that

              “[i]t is true that there is implied in every contract a duty of
              good faith and fair dealing in its performance and
              enforcement, and a person is presumed to know the law.
              What this duty consists of, however, depends upon the
              individual contract in each case. In construing contracts,
              courts look to the language of the instrument and to the
              intention of the parties, and impose a construction which is
              fair and reasonable.”

Wallace v. National Bank of Commerce, 938 S.W.2d 684, 686 (Tenn. 1996) (internal
citation omitted). “[T]he purposes of this implied duty are two-fold: to honor the
reasonable expectations of the contracting parties, and to protect the rights of the parties
to receive the benefits of their agreement.” SecurAmerica Business Credit v.
Schledwitz, No. W2009-02571-COA-R3-CV, 2011 WL 3808232, at *12 (Tenn. Ct. App.,
filed August 26, 2011).

       AME claims that TESS conducted its business in bad faith, unfairly, or in a
commercially unreasonable manner. During the trial, the only statement on this issue
was in AME’s opening statement. Counsel questioned the following:

              Is this contract even conscionable? And the reason that we
              ask the Court to consider that is because in order for a
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              contract to be fair and equitable between the parties, there
              must be a measure of good faith and there must be
              reasonableness. So if this Court were to . . . make a
              determination . . . concerning this contract, then we ask the
              Court to consider those issues that we have raised. Is it
              conscionable? Was the dealing . . . between the parties fair
              and equitable? Was there good faith shown by the parties?

        AME, however, did not demonstrate why the contact in this case, which is really
nothing more than a pricing agreement, is unconscionable. In its memorandum filed in
the trial court the day before the court entered its order, AME asserted the following:

              TESS owed a duty to AME to fill and deliver oxygen tanks to
              AME to procure compensation. Good faith and fair dealing
              required TESS to make each delivery with finality. This is
              the only circumstance under which AME was obligated to
              pay for the services. TESS owed a duty to cooperate by
              having competent and capable delivery persons to make a
              final decision regarding the accuracy of each delivery.
              Instead, TESS, without the consent of AME or without its
              knowledge, altered a considerable number of the deliveries by
              utilizing an inventory process which AME had no knowledge
              of, while charging or billing AME off of any changes made
              by the inventory. . . . The legal premise is this breach of duty
              by TESS excused the non-occurrence of payment in full by
              AME.

              There are other instances of TESS’s non-cooperation. . . .
              David Graves was consulted to find out what tanks TESS
              might have that belonged to AME. Graves advised he
              couldn’t help because he did not keep serial numbers of the
              tanks. . . . Graves did not offer to review or audit the TESS
              business records; and undertook nothing more than a
              superficial claimed-audit in 2012 that revealed nothing. This
              was not cooperation. This was done in bad faith to suppress
              knowledge of the TESS business practices.

       In its brief, AME asserts that, because the contract is silent with regard to how the
delivery process will be performed, performance “must be made in good faith and in a
commercially reasonable manner.” It claims that “[t]he TESS practice of altering
delivery tickets after a delivery and billing off of the altered tickets, empirically
establishes TESS does not do business in good faith, in fairness, nor in a commercially
reasonable manner.” We disagree.
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        “[I]n determining whether the parties acted in good faith in the performance of a
contract, the court must judge the performance against the intent of the parties as
determined by a reasonable and fair construction of the language of the instrument.”
Wallace, 938 S.W.2d at 686. Furthermore, “[p]erformance of a contract according to its
terms cannot be characterized as bad faith.” Id. at 687. In this case, as already stated, the
trial court specifically found that “TESS properly billed AME for gases, tank rental, and
tank purchases.” We agree.

        AME has failed to cite authority for its proposition that or demonstrate how
TESS’s verification process is in bad faith, unfair, or commercially unreasonable.
Because the verification process at the TESS facility resulted in TESS properly billing its
clients, we fail to find this proper billing to be in bad faith, unfair, or commercially
unreasonable. Good faith is judged against the intent of the parties. Id. The contract at
issue demonstrates the intent that the parties will be billed under the terms of the
agreement. It appears to us that TESS’s verification process is the means it uses to
enforce its rights under the contract and perform based on the intent of the parties to be
billed based upon the agreed upon terms. It is not unreasonable, unfair, or commercially
unreasonable for TESS to engage in a process to ensure that it is properly billing its
customers. This process ensures that TESS is paid and customers are billed according to
the prices agreed on in the contract. AME has failed to demonstrate how this process
demonstrates that TESS acted in bad faith, unfairly, or in a commercially unreasonable
manner.

        Furthermore, there is no evidence in the record to demonstrate that TESS engaged
in this verification process for the purpose of overbilling customers. Aside from AME’s
conclusory assertion that the process resulted in conversion of its tanks — an assertion it
has not proven — AME has presented no evidence why, in an industry where there is a
problem with tanks becoming lost, a verification process would be in bad faith, unfair, or
commercially unreasonable. The fact that AME did not conduct its own audit and track
its own tanks leaves AME unable to establish, with evidence, the validity of its claim that
TESS overbilled it. We hold that AME has failed to establish that TESS has acted in bad
faith, unfairly, or in a commercially unreasonable manner.

                                             V.

      The judgment of the trial court is affirmed. The costs on appeal are assessed to
the appellant, Advanced Medical Equipment, LLC. This case is remanded for
enforcement of the trial court’s judgment and for collection of costs assessed below.

                                                    _______________________________
                                                    CHARLES D. SUSANO, JR., JUDGE

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