Court Opinion

ID: 1055324
Source: CourtListenerOpinion
Date Created: 2013-10-08 20:56:36.636305+00
Date Added: 2024-06-11T08:17:21.356679
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                               AT JACKSON
                                   February 20, 2004 Session

        JOE RANKIN AND WIFE, BRENDA RANKIN v. LLOYD SMITH

                     An Appeal from the Chancery Court for Dyer County
                        No. 02C210     J. Steven Stafford, Chancellor

                    No. W2003-00992-COA-R3-CV - Filed August 23, 2004

        This is a breach of contract case. The plaintiffs entered into a contract to sell their home and
farm to the defendant. On the scheduled closing date, the defendant refused to purchase the property.
The plaintiffs sold the property to a third party for substantially less than the amount the defendant
had agreed to pay. In April 2002, the plaintiffs filed the instant lawsuit against the defendant for
breach of contract. The defendant argued that he was fraudulently induced into signing the contract,
because the parties had a verbal understanding that the contract would not be enforced. The trial
court granted summary judgment in favor of the plaintiffs. The defendant now appeals. We affirm,
finding that the defendant alleges promissory fraud, that evidence of the parties’ verbal agreement
is inadmissible under the parol evidence rule, and that the evidence submitted by the defendant does
not create a genuine issue of material fact regarding fraudulent inducement.

    Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court is Affirmed

HOLLY M. KIRBY , J., delivered the opinion of the Court, in which ALAN E. HIGHERS, J., and DAVID
R. FARMER , J., joined.

Thomas H. Strawn, Dyersburg, Tennessee, for the appellant, Lloyd Smith.

Timothy Boxx, Dyersburg, Tennessee, for the appellees, Joe Rankin and wife, Brenda Rankin.

                                              OPINION

        This is a case of two former friends. On August 31, 2000, Plaintiffs/Appellees Joe Rankin
(“Rankin”) and his wife, Brenda Rankin (collectively “the Rankins”), executed a contract for the sale
of their home and the 72-acre farm on which it was situated to Defendant/Appellant Lloyd Smith
(“Smith”) for $225,000. Under the purchase contract, the closing date was to be 120 days from the
date of the execution of the contract. On that date, the entire purchase price was to be paid in full,
and Smith was to take possession at the closing. The contract also gave Smith permission to inspect
the property at any time, and prohibited the Rankins from marketing the property to third parties.
        On the scheduled date, Smith did not tender the purchase price. Subsequently, the Rankins
sold the property to a third party for $155,000.

       On April 26, 2002, the Rankins filed the instant lawsuit against Smith for breach of contract.
On May 7, 2002, Smith filed his answer, admitting that he had signed the contract in question, but
denying all other material allegations of the complaint. Discovery ensued.

        On December 6, 2002, the Rankins took Smith’s deposition. In his deposition, Smith
admitted that he had executed the purchase contract with the Rankins. He explained, however, that
the purchase contract with the Rankins was part of a three-party transaction involving another
purchaser, Jimmy Wilson (“Wilson”). Smith said that Wilson wanted to purchase the property from
the Rankins, but he did not have the money at that time. Smith explained that Wilson expected to
receive approximately $400,000 from a lawsuit in which he was involved, but that it would be
several months before he would have the money. Therefore, in order to facilitate Wilson’s
acquisition of the Rankins’ property, Smith signed the contract with the Rankins to purchase the
property for $225,000, and at the same time he signed a contract with Wilson to sell the property to
Wilson for the same price. Smith testified that, according to the agreement, when the property was
transferred to Wilson, Smith would retain “about 25 acres or so” of the farm land. Smith said that
keeping the 25 acres would make it “worth [his] while” to enter into the transaction. Smith said that
Joe Rankin was aware of the agreement with Wilson. As for Smith’s contract with the Rankins,
Smith testified that the parties agreed that it would not be enforced. Smith asserted that Rankin, with
whom Smith had been friends for some time, induced him into signing the purchase contract by
agreeing that “it would not be no count.” In his interrogatory answers, Smith again indicated that
Rankin induced him into signing the contract “by stating that [the] contract was not meant to be
enforced.” The record does not state this, but we can only surmise that on the appointed date,
Wilson was unable or unwilling to perform his part of this convoluted transaction.

        On January 24, 2003, the Rankins filed a motion for summary judgment. The Rankins
argued that the undisputed facts established the existence of a valid contract, and that there was
insufficient evidence to support Smith’s defense of fraudulent inducement. The Rankins also
contended that any evidence of the parties’ oral agreement that the contract “would be no count” was
ambiguous and was inadmissible under the parol evidence rule. In response, Smith argued that the
Rankins were not entitled to summary judgment, because a genuine issue of material fact existed as
to whether he was fraudulently induced into signing the contract. On March 25, 2003, the trial court
granted the Rankins’ motion for summary judgment, concluding that “there is no genuine issue as
to any material fact and that the [Rankins] are entitled to a judgment as a matter of law.” From that
order, Smith now appeals.

        On appeal, Smith argues that the trial court erred in granting the Rankins summary judgment,
because summary judgment is not appropriate where fraud is at issue. He claims that evidence of
his collateral agreement with the Rankins that the contract would never be enforced shows that he
was fraudulently induced into entering into the transaction. He concedes that the evidence is not
conclusive, but contends that it is sufficient to create a genuine issue of material fact on the issue of

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fraud. In response, the Rankins argue that the alleged collateral agreement would be an oral
agreement between the parties that contradicts the written contract; thus, evidence of it is
inadmissible under the parol evidence rule. Even if consideration of the oral agreement as evidence
was permissible, the Rankins claim, summary judgment in their favor was appropriate.

         We review the trial court’s grant of summary judgment de novo with no presumption of
correctness. Warren v. Estate of Kirk, 954 S.W.2d 722, 723 (Tenn. 1997). Summary judgment is
appropriate where “the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law.” Tenn. R. Civ. P. 56.04. We must
view the evidence in the light most favorable to the nonmoving party, giving that party the benefit
of all reasonable inferences. Warren, 954 S.W.2d at 723 (quoting Bain v. Wells, 936 S.W.2d 618,
622 (Tenn. 1997)). Once the moving party demonstrates that no genuine issues of material fact exist,
the non-moving party must demonstrate, by affidavits or otherwise, that a disputed issue of material
fact exists for trial. Byrd v. Hall, 847 S.W.2d 208, 211 (Tenn. 1993).

        In Farmers & Merchants Bank v. Petty, 664 S.W.2d 77 (Tenn. Ct. App. 1983), the
defendant signed a note with the plaintiff bank for about $35,000 to cover an overdraft that had
accrued on his son’s bank account.1 The father did not pay on the note, and the bank sued the father
to recover the amount due. As a defense, the defendant father asserted that the bank president
fraudulently induced him into signing the note. The defendant father said he had known the
president of the bank all of his life. He asserted that the bank president convinced him to sign the
note to get the bank president “off the hook” with bank examiners who were coming to the bank.
The defendant father testified that the bank president guaranteed him that he would never have to
pay the note. Petty, 664 S.W.2d at 79. At the conclusion of the jury trial, the jury returned a verdict
in favor of the defendant, finding specifically that the defendant father executed the note “as a result
of relying on false or fraudulent statements and misrepresentations . . . .”2 Id.

        The bank appealed the jury verdict, claiming that there was insufficient evidence of fraud to
invalidate the note upon which the suit was based. The appellate court agreed and reversed the jury
verdict. The appellate court recognized that, “[a]s a general rule, summary judgment is not an
appropriate procedure for the disposition of [a claim of fraud].” Id. at 80. The court reasoned,
however, that the party asserting fraud must “produce some competent and material evidence legally
sufficient to support his claim or defense.” Id. It noted that a party asserting promissory fraud, that
is, making a promise without intent to perform, must show that the person committing the fraud

        1
            The son also signed the note and was a defendant in the case.

        2
        The defendant father also filed a counterclaim against the bank for damages relating to the fraudulent
inducement. In the instant case, Smith did not file a counterclaim against the Rankins.

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made a promise as to future conduct without any present intention to perform.3 In Petty, the
president of the bank essentially made a promise that the bank would not enforce the note against
the defendant father. Such a promise, the court held, was not sufficient to negate the obligation of
the written instrument under Tennessee law. Moreover, Petty found that evidence of an oral promise
not to enforce a written agreement was inadmissible parol evidence. Id. at 81. The court reasoned:

                 The rule that a written contract must prevail over previous or
                 contemporaneous contradictory representations is not merely a rule
                 of evidence, but one of substantive law. . . . Terms of a note cannot
                 be varied by oral proof. . . . Parol evidence of an oral agreement
                 alleged to have been made at the time of the drawing, making or
                 indorsing of a bill or a note cannot be permitted to vary, qualify,
                 contradict, or add to or subtract from the absolute terms of the written
                 contract. . . . Proof is inadmissible to show an oral agreement that the
                 maker of a note was not to be personably bound. . . . Where a note is
                 an unconditional promise on its face, parol evidence is inadmissible
                 to show an oral condition.

Id. (citations omitted.) Thus, Petty held that parol evidence of an oral agreement not to enforce the
contract was inadmissible to show that the defendant father was fraudulently induced into signing
the contract. Id.

        In the instant case, Smith sought to introduce into evidence his own deposition testimony that
he and Joe Rankin orally agreed that the real estate contract “would not be no count.” Smith appears
to argue that this was a promise not to enforce the purchase contract. He explained that the parties’
intent was that Wilson would ultimately buy the Rankins property, and Smith would receive 25 acres
for his involvement in the transaction. Smith submitted no documentary evidence to support his
assertion. Under Petty, this parol evidence of an oral agreement is inadmissible to contradict the
written contract for sale between the parties.

        Even if the parol evidence submitted by Smith were admissible, it is insufficient to show
fraudulent inducement. To show fraudulent inducement to contract, a party must show “(1) a false
statement concerning a fact material to the transaction; (2) knowledge of the statement’s falsity or
utter disregard for its truth; (3) intent to induce reliance on the statement; (4) reliance under
circumstances manifesting a reasonable right to rely on the statement; [and] (5) an injury resulting
from the reliance.” Lamb v. MegaFlight, Inc., 26 S.W.3d 627, 630 (Tenn. Ct. App. 2000). Smith’s
statement that the parties allegedly intended that his purchase contract with the Rankins “would be
no count” was ambiguous at best. It certainly does not show that a statement was made concerning

        3
          The intermediate appellate court in Petty explained that the Tennessee Supreme Court had not adopted the
doctrine of promissory fraud, but that it had expressed a willingness to consider adopting the doctrine “in a proper
case where justice demands.” Petty, 664 S.W.2d at 80-81 (quoting Fowler v. Happy Goodm an Fam ily, 575 S.W .2d
496 (Tenn. 1978) (quoting Bolan v. Caballero, 417 S.W .2d 538, 541 (Tenn. 1967))).

                                                        -4-
a fact material to the transaction, or that Smith’s reliance on the Rankins’ alleged representation was
reasonable under the circumstances. Moreover, it contradicts the remainder of Smith’s deposition
testimony. Smith’s own testimony shows that when he and the Rankins signed the purchase
agreement, they fully intended to abide by it. Smith testified that, by becoming involved in the
transaction, he would benefit by obtaining approximately 25 acres of land at virtually no financial
cost to himself, and that acquiring the land would be the consideration for his participation in the
overall transaction. The contract for sale between Smith and the Rankins shows that Smith was to
buy the entire property, and Smith testified that he had an identical contract with Wilson to sell the
property to Wilson, less the 25 acres. Wilson was not mentioned in the contract for sale between
Smith and the Rankins, and Smith testified that the Rankins were not mentioned in his contract with
Wilson. Apparently, subsequent events prevented Wilson from purchasing the property from Smith.
This has no effect on the contract at issue here. There being insufficient evidence to create a genuine
issue of material fact regarding whether Smith was fraudulently induced into signing the contract,
the contract must be enforced according to its plain terms. Thus, the trial court properly granted
summary judgment in favor of the Rankins.

       The decision of the trial court is affirmed. Costs on appeal are to be taxed to Appellant Lloyd
Smith and his surety, for which execution may issue, if necessary.

                                                       ___________________________________
                                                       HOLLY M. KIRBY, JUDGE

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