Court Opinion

ID: 1046530
Source: CourtListenerOpinion
Date Created: 2013-10-08 02:37:01.037214+00
Date Added: 2024-06-11T12:17:44.259181
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                               AT KNOXVILLE
                                       March 7, 2012 Session

            DAVID R. SEATON, ET AL. v. WISE PROPERTIES-TN, LLC

                     Appeal from the Chancery Court for McMinn County
                         No. 24307     Lawrence H. Puckett, Judge 1

                     No. E2011-01728-COA-R3-CV-FILED-JUNE 22, 2012

This appeal concerns a contract for the purchase and sale of property. The buyer refused to
close pursuant to the terms of the contract and stopped payment on its earnest money check.
The sellers brought an action for specific performance and breach of contract. The buyer
alleged that the sellers breached the contract first. The trial court found in favor of the buyer,
holding that because the sellers did not cause title to be examined ten days from the effective
date of the contract, the buyer had a right to withdraw the earnest money payment. The
sellers appeal. We affirm the judgment of the trial court.

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

J OHN W. M CC LARTY, J., delivered the opinion of the Court, in which C HARLES D. S USANO,
J R. and D. M ICHAEL S WINEY, JJ., joined.

H. Wayne Grant, Chattanooga, Tennessee, for the appellants, David R. Seaton and Paul Ray
Seaton.

Gary R. Patrick, Chattanooga, Tennessee, for the appellee, Wise Properties-TN, LLC.

                                               OPINION

      In late 2007 or early 2008, Wise Properties-TN, LLC 2 (“Wise”) and Paul Ray (“Ray”)
Seaton’s real estate agent, Tad Bromfield, discussed the possibility of a real estate transaction

       1
           Sitting by interchange.
       2
           John S. Wise, III, President and Sole Member.
involving parcels of land in Athens, Tennessee, owned by Mr. Seaton and his son, David R.
Seaton (collectively “the Seatons”). According to Wise, it was interested in acquiring the
land for a commercial car wash and an apartment complex. Along with Mr. Bromfield, the
primary facilitator of the negotiations was William (“Bill”) Alt, a Chattanooga attorney. It
appears that Mr. Alt had represented Wise in a number of legal matters; however, he had
represented the Seatons for a much longer period of time. Mr. Alt never discussed any
potential conflict of interest with Wise. He communicated with both Wise and the Seatons
about the parcels at issue, and proceeded to draft relevant documents.

      In January 2008, the parties circulated a draft purchase and sale agreement (“the
Agreement”) whereby Wise would purchase the Seatons’ land in Athens for $1,000,000 total,
$50,000 of which was to be paid in escrow as a down payment. Pertinent sections of the
Agreement provided as follows:

        3. Stipulations. The following provisions and stipulations are a part of this
        Agreement:

        A.) The parties agree that the Purchaser shall have the right for a period of 45
        days from the Effective Date of this Agreement to inspect the Property
        following the execution of this Agreement, which shall include the right to
        come upon the Property and perform such tests and examinations thereof as it
        may deem appropriate. Purchaser agrees that upon completion of such tests
        and examinations it will promptly restore the Property to its prior condition.
        Seller agrees to hold Purchaser harmless and will indemnify them against any
        claim, liability, loss, damages, or litigation arising from or related to the Seller
        or its representatives being upon the Property or any activities conducted with
        respect to the Property.

                                                   ***

        5. Title Evidence.

        (a) No later than Ten (10) days [?]3 the Effective Date, Seller, shall cause title
        to the Property to be examined and upon receipt furnish to Purchaser a copy
        of the commitment for title insurance on the Property (the “Title

        3
         A word or phrase is missing. The Seatons contend that the Agreement specified that the Seller (the
Seatons) would cause the title to the property to be examined no later than ten days “following” the effective
date of the Agreement, but assert that the document does not fix any time within which a copy of the
commitment for title insurance must be furnished to the Buyer (Wise).

                                                     -2-
Commitment”). If (i) the Title Commitment shows that Seller does not have
good and marketable title to the Property in fee simple; or (ii) the Property is
subject to any defects, liens, encumbrances, easements, rights-of-way,
covenants, reservations or restrictions, other than the Permitted Exceptions,
then Purchaser shall, within Two (2) days of its receipt of the Title
Commitment, . . . give notice in writing to [Seller] of any objections to the title
to the Property. The matters that are set forth in such written notice are
hereinafter referred to as “Title Objections.”

(b) Seller shall, upon receipt of notice of the Title Objections, promptly
undertake and complete at its expense all actions as are necessary to satisfy or
remedy the Title Objections. If Seller has not so satisfied or remedied the Title
Objections by the Closing Date, as hereinafter defined, then Purchaser may:
(i) Terminate this Agreement and the Earnest Money shall be returned to
Purchaser, together with the expense incurred by the title company providing
the Title Commitment; or (ii) Unilaterally extend the Closing Date for a period
not exceeding thirty (30) days to allow the Seller to satisfy or otherwise cure
the Title Objections, or (iii) Elect to waive the Title Objections and close on
the purchase of the Property without reduction in the purchase price.
Notwithstanding the foregoing, monetary liens may be satisfied out of the
proceeds due Seller at Closing.

                                      ***

10. Default. Should either party default in the performance of any of its
obligations set forth in this Agreement to be performed prior to the Closing,
which default is not cured after five (5) days written notice thereof, or, should
there be a breach by either party of any of their respective representations and
warranties as contained herein, which has not otherwise been specifically
addressed in other provisions of this Agreement, then the non-defaulting or
non-breaching party shall be entitled to exercise all remedies as may be
available to it by law, in equity or by statute and the non-defaulting party shall
be entitled to recover its costs as a result of such default or breach, including
reasonable attorney’s fees and litigation costs.

If Purchaser defaults hereunder, Seller agrees, in consideration of the services
rendered by the Real Estate Broker, that should it elect to retain the Earnest
Money deposited with this Escrow Agent, it shall be divided equally between
the Seller and the Real Estate Broker after satisfaction of any expenses
incurred by Seller relating to this Agreement. In no event shall Real Estate

                                        -3-
       Broker’s portion of the Earnest Money exceed the sum which Real Estate
       Broker would have received had the purchase and sale been normally
       consummated, any excess being retained by Seller. In the event Seller obtains
       specific performance of this Agreement, the commission due the Real Estate
       Broker shall be paid in full at the time that the Seller receives the purchase
       price proceeds.

                                                   ***

       14. Offer and Acceptance. If this offer is not accepted by Monday, January
       28, 2008, then this proposal shall be deemed terminated and neither party shall
       have any obligation or claim against each other arising from such failure to
       enter into this Agreement.

       15. Miscellaneous.

                                                   ***

       (d) Time is of the essence of this Agreement. Wherever a date certain is
       established, specified, or defined in this Agreement for the payment of any
       sum of money or the performance of any act or thing, it is of the essence of this
       Agreement.

The closing date was set in the Agreement for April 18, 2008.

       Wise signed the Agreement but it appears that Mr. Alt revised it. The revised
Agreement contained at least two significant changes: 1) deletion of the right to termination
that existed in the inspection provision,4 and 2) change in the description of the subject
property. While the parcels were described in the initial Agreement by metes and bounds,
as well as a measure of total acreage, the property in the revised Agreement was described
only as “portions of the real property which are within the deed descriptions of” three
specific deeds. The revised Agreement contained no measure of acreage, nor any description
of the metes and bounds of the property at issue.

       On January 28, 2008, Ray Seaton executed the Agreement as revised by Mr. Alt.
Wise signed the revised Agreement on January 30, 2008, after the required execution date.
Wise, however, made two changes to the Agreement: 1) the escrow payment was reduced

       4
           No one admits to removing the right to terminate language.

                                                    -4-
from $50,000 to $5,000; and 2) the 45-day inspection period was increased to 75 days.

       Mr. Alt subsequently drafted an amendment to the Agreement: 1) he changed the
“Effective Date” of the Agreement from January 28 to January 30, 2008; 2) he changed the
45-day inspection period to 75 days; 3) he rejected Wise’s proposed revision of the $50,000
escrow fee; and 4) he set forth some details regarding the Seatons’ agreement to partially
finance Wise’s purchase. Wise and Ray Seaton both executed the amendment on February
7, 2008.

        On February 20, 2008, Mr. Alt contacted David Siklosi, a title attorney in Athens, to
raise certain specific questions relating to potential issues regarding the title to the property;
subjects addressed included rezoning, a possible utility easement, and a claimed right-of-way.
On March 26, 2008 – nearly two months after the effective date in the Agreement – Mr.
Siklosi was asked if he could insure a title to the Seatons’ property that accounted for a
roadway easement at issue. However, immediately after sending this letter, and before Mr.
Siklosi could respond, Mr. Alt contacted him and told him to take no action.

       During this time period, Wise had been searching for commercial financing. Despite
the fact that it could secure some financing through the Seatons, Wise needed another
significant source of capital before it could purchase or develop the Seatons’ property as
planned. According to Wise, by the end of March 2008, it became clear that adequate
financing for the proposed project was not available.5 Around two weeks before the closing
date in the Agreement, on April 3, 2008, Wise stopped payment on the $50,000 earnest
money check. Wise later testified as follows:

        A. . . . [A]t some point I guess the inspection period was running out. – I
        didn’t – anyway, I just remember getting a phone call and Tad said, listen, your
        inspection period is going to run out tomorrow and we’re going to need to cash
        the check. And I said, well, Tad, we’re not cashing the check because I can’t
        get financing right now.

        And he said, well, per the contract we’ve got – and I said, well, I’m going to
        stop payment on the check then because we’re not cashing the check because
        I don’t have the money and I don’t have financing. So the deal – you know,

        5
          In its amended answer to the Seatons’ complaint, Wise asserted that it had engaged in a good faith
effort to obtain financing. Several banks were approached but all declined to extend financing. Wise
claimed that the true intention of the parties prior to the execution of the Agreement was to make Wise’s
performance contingent upon the ability to obtain financing. The Seatons argue that the Agreement did not
condition Wise’s purchase of the property on the ability to obtain financing.

                                                    -5-
        until I get some financing in place there’s no sense tying up a bunch of money.

                                                  ***

        A. . . . As far as I know, everybody was very clear that this deal was a long
        ways from going through because everybody was involved in the whole bank
        scenario. And there was no need to get a title policy and there was no need to
        get any of that because the deal was not looking like it was going to go to
        fruition. . . .

Mr. Wise told the Seatons: “I do want to continue working on the deal, but the contract will
have to be renegotiated.” 6

        After Wise repudiated the Agreement by stopping payment on the earnest money
check, Mr. Alt attempted to revive the deal contained in the Agreement; however, his
attempts were unsuccessful. On June 4, 2008, Mr. Alt informed Wise by letter that, due to
its “failure of performance” under the Agreement, the Seatons “declare[d] the contract of
purchase to be terminated.” On October 10, 2008, the Seatons filed this lawsuit.

        Wise moved for summary judgment on May 10, 2011, arguing that under Tennessee
law, a seller of real estate is not entitled to hold a buyer responsible for breach when the
seller did not perform all prerequisite conditions contained in the Agreement. Wise asserted
that the Seatons had not provided proof of clear title or a title insurance policy. After a
hearing, the trial court ruled as follows from the bench:

        I believe that I’m going to enforce the agreement, paragraph five, that the title
        was required to be – I’m going to read it and quote it, “No later than ten days
        the effective date, seller shall cause title to the property to be examined and
        upon receipt furnish a copy of the commitment for title insurance on the
        property, and then in parentheses, (the Title Commitment.)”

        Now, that was never done. It’s not even in dispute it was never done within
        the ten days. And there was no waiver because it wasn’t known. It was
        something that only would be known to the buyer if the sellers chose to

        6
         The Seatons argue that Wise waived their breach because it continued to seek financing after April
3, 2008. Mr. Wise apparently was still interested in obtaining a smaller parcel of two or three acres for a
car wash, but the Seatons would not agree to a new deal. According to Mr. Wise, at the time he stopped
payment on the escrow check, he did not realize that the right to terminate had been removed from the
Agreement.

                                                   -6-
      divulge it. There’s no triggering of the default because he didn’t know it either
      until – and could not know it unless the sellers told him.

      Now, this contract is required to have things done promptly. Time is of the
      essence as part of this contract. Everybody is bound by that. As soon as the
      property was – the title was examined it says upon receipt they were to furnish
      to the purchaser a copy of the commitment for title insurance. So based on the
      Nichols case I’m going to grant summary judgment.

      In other words, he had a right to withdraw his deposit. There doesn’t need to
      be anything more said.

      And the contract was definitely repudiated by his act of notifying you he was
      withdrawing his deposit. And then, of course, it was also treated as terminated
      by the sellers, treated as terminated effective upon his withdrawal of his
      escrow deposit. So that’s the ruling of the Court.

An order granting summary judgment that incorporated by reference the above reasoning
was filed on July 26, 2011. The Seatons filed a timely appeal.

                                        II. ISSUES

      The issues raised in this appeal by the Seatons are as follows:

      1. Did the trial court err in granting Wise’s motion for summary judgment
      based on the Seatons not providing Wise with a commitment for title
      insurance.

      2. Did the trial court err in granting Wise’s motion for summary judgment
      because causing title to the property to be examined within ten days from the
      effective date of the Agreement was not a condition precedent under the
      Agreement.

      3. Did the trial court err in granting Wise’s motion for summary judgment
      because not causing title to the property to be examined within ten days from
      the effective date of the Agreement was not a material breach of the
      Agreement.

      4. Did the trial court err in applying the incorrect summary judgment standard

                                             -7-
      to reach its erroneous conclusion that summary judgment was proper because
      the Seatons treated the Agreement as terminated.

      5. Did the trial court err in ruling that Wise did not waive performance of the
      Seatons’ promise to cause the title to the property to be examined within ten
      days from the effective date of the Agreement.

                             III. STANDARD OF REVIEW

      The applicable summary judgment standard in this case was set out in the cases of
Martin v. Norfolk S. Ry. Co., 271 S.W.3d 76 (Tenn. 2008), and Hannan v. Alltel Publ’g Co.,
270 S.W.3d 1 (Tenn. 2008). In Martin, the Court set out the standard as follows:

      The moving party is entitled to summary judgment only if the “pleadings,
      depositions, answers to interrogatories, and admissions on file, together with
      the affidavits . . . 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; accord Penley v. Honda Motor Co., 31 S.W.3d 181, 183 (Tenn.
      2000). The moving party has the ultimate burden of persuading the court that
      there are no genuine issues of material fact and that the moving party is
      entitled to judgment as a matter of law. Byrd v. Hall, 847 S.W.2d 208, 215
      (Tenn. 1993). Accordingly, a properly supported motion for summary
      judgment must show that there are no genuine issues of material fact and that
      the moving party is entitled to judgment as a matter of law. See Staples v. CBL
      & Assocs., Inc., 15 S.W.3d 83, 88 (Tenn. 2000); McCarley v. W. Quality Food
      Serv., 960 S.W.2d 585, 588 (Tenn. 1998). If the moving party fails to make
      this showing, then “the non-movant’s burden to produce either supporting
      affidavits or discovery materials is not triggered and the motion for summary
      judgment fails.” McCarley, 960 S.W.2d at 588; accord Staples, 15 S.W.3d at
      88.

      The moving party may make the required showing and therefore shift the
      burden of production to the nonmoving party by either: (1) affirmatively
      negating an essential element of the nonmoving party’s claim; or (2) showing
      that the nonmoving party cannot prove an essential element of the claim at
      trial. Hannan v. Alltel Publ’g Co., 270 S.W.3d 1, 5 (Tenn. 2008); see also
      McCarley, 960 S.W.2d at 588; Byrd, 847 S.W.2d at 215 n. 5. Both methods
      require something more than an assertion that the nonmoving party has no
      evidence. Byrd, 847 S.W.2d at 215. Similarly, the presentation of evidence

                                              -8-
      that raises doubts about the nonmoving party’s ability to prove his or her claim
      is also insufficient. McCarley, 960 S.W.2d at 588. The moving party must
      either produce evidence or refer to evidence previously submitted by the
      nonmoving party that negates an essential element of the nonmoving party’s
      claim or shows that the nonmoving party cannot prove an essential element of
      the claim at trial. Hannan, 270 S.W.3d at 5. We have held that to negate an
      essential element of the claim, the moving party must point to evidence that
      tends to disprove an essential factual claim made by the nonmoving party. See
      Blair v. W. Town Mall, 130 S.W.3d 761, 768 (Tenn. 2004). If the moving
      party is unable to make the required showing, then its motion for summary
      judgment will fail. Byrd, 847 S.W.2d at 215.

      If the moving party makes a properly supported motion, then the nonmoving
      party is required to produce evidence of specific facts establishing that genuine
      issues of material fact exist. McCarley, 960 S.W.2d at 588; Byrd, 847 S.W.2d
      at 215. The nonmoving party may satisfy its burden of production by:

             (1) pointing to evidence establishing material factual disputes
             that were over-looked or ignored by the moving party; (2)
             rehabilitating the evidence attacked by the moving party; (3)
             producing additional evidence establishing the existence of a
             genuine issue for trial; or (4) submitting an affidavit explaining
             the necessity for further discovery pursuant to Tenn. R. Civ. P.,
             Rule 56.06.

      McCarley, 960 S.W.2d at 588; accord Byrd, 847 S.W.2d at 215 n. 6. The
      nonmoving party’s evidence must be accepted as true, and any doubts
      concerning the existence of a genuine issue of material fact shall be resolved
      in favor of the nonmoving party. McCarley, 960 S.W.2d at 588. “A disputed
      fact is material if it must be decided in order to resolve the substantive claim
      or defense at which the motion is directed.” Byrd, 847 S.W.2d at 215. A
      disputed fact presents a genuine issue if “a reasonable jury could legitimately
      resolve that fact in favor of one side or the other.” Id.

Martin, 271 S.W.3d at 83-84.

                                    IV. DISCUSSION

      A condition precedent assumed by a party must be fulfilled by that party before

                                             -9-
performance by the other party can be demanded. Interstate Bldg. Corp. v. Hillis, 66 S.W.2d
597, 600-02 (Tenn. Ct. App. 1933). The party seeking to enforce a contract has the burden
of proving that it has performed conditions precedent to the liability of the other party. John
H. Moore & Sons v. Adams, 324 S.W.2d 499, 501 (Tenn. Ct. App. 1959).

       Mr. Siklosi stated in his affidavit that the first time he had any communication with
the Seatons was 20 days after the effective date of the Agreement. He noted that “[n]either
Bill Alt nor any person asked me to examine the title, nor perform a title search of the
property. . . .” At the hearing, the trial court noted:

       THE COURT: Well, [the Agreement] says “shall cause title to the property to
       be examined,” and Mr. Siklosi’s affidavit says nobody ever asked him to
       examine the property. They went straight to the problem with the property,
       which was this easement. That’s all Mr. Alt ever did.

                                             ***

       . . . [I]t says you will cause within ten days an examination of the title. And
       it’s without dispute that you all didn’t do that.

                                             ***

       . . . [Y]ou never asked for an examination of the title according to Mr. Siklosi.

        “When time is of the essence, the failure of a party to meet a condition precedent gives
the other party a basis to rescind the contract.” See 77 Am. Jur.2d Vendor and Purchaser §
80 (1975); 91 C.J.S. Vendor & Purchaser § 104b (1955); Alexander & Shankle, Inc. v.
Metro. Gov’t of Nashville & Davidson County, No. M2006-011680-COA-R3-CV, 2007
Tenn. App. LEXIS 521, *25 (Tenn. Ct. App. Aug. 13, 2007) (noting that “a contract
providing that time is of the essence is enforceable, and failure to meet the specific and
explicit time requirements constitutes a breach which permits the non-defaulting party . . .
to terminate the contract”). Time requirements under such clauses mandate that courts
answer “the question of whether failing to complete performance on time constitutes a
material breach” by looking to see “whether ‘time is of the essence’ with respect to the
contract.” Groner v. On-Site Grading, Inc., No. E1999-00219-COA-R3-CV, 2000 Tenn.
App. LEXIS 270, *10-11 (Tenn. Ct. App. Apr. 28, 2000). Section 15(d) of the Agreement
in the instant case provided that “[t]ime is of the essence of this Agreement.”

       The Seatons argue that causing title to the property to be examined within ten days

                                              -10-
from the effective date of the Agreement was not a condition precedent to enforcement, but
rather just a promise or covenant they undertook. They also contend that not causing title to
be examined within ten days from the effective date of the Agreement was not a material
breach. Further, the Seatons assert that Wise waived or excused performance of the
requirement that the title be examined within ten days from the effective date of the
Agreement by continuing negotiations and attempting to close the transaction. Thus,
according to the Seatons, they had a reasonable time within which to comply with the terms
of the Agreement and were ready and able to perform. The Seatons additionally contend that
their obligation to perform would have been futile, as recognized by Mr. Wise’s admission
that he was unable and unwilling to perform under the Agreement because of the inability
to secure financing. Therefore, they argue that any duty they had to examine title and provide
Wise with a copy of the commitment for title insurance prior to the closing date was
suspended and the default by Wise occurred prior to the time when they were required to
fulfill any condition precedent.

       As found by the trial court, it is undisputed that the Seatons did not order a title
examination within ten days of January 30, 2008, and never issued a title commitment. “[A]
vendor . . . guilty of failure to perform a prerequisite condition . . . is not in [a] position to
rely upon any failure to perform by the vendee.” Nichols v. Blocker, No. 87-110-II, 1988 WL
39569, at *5 (Tenn. Ct. App. Apr. 29, 1988). The Seatons did not act in accordance with this
requirement of the Agreement, especially since every date specified or established in the
Agreement was “of the essence.” Given that the failure to timely perform contractual
obligations where “time is of the essence” constitutes a material breach, and that timely
performance is a condition precedent under such clauses, Wise was entitled to rescind the
Agreement and the Seatons, as a matter of law, cannot compel Wise to perform. Groner,
2000 Tenn. App. LEXIS 270 at *10-11. The material breach by the Seatons thus preceded
Wise’s decision to stop payment on the earnest money check, and gave Wise the ability to
“terminate” the contract. Akins v. Tedder, 1988 Tenn. App. LEXIS 648, *8-9 (Tenn. Ct.
App. Oct. 21, 1988).

        In Akins, we acknowledged that “[t]he party entitled to insist on the timely
performance of a contract for the purchase and sale of real property can waive the condition
either expressly or by acts or conduct clearly indicating an intention not to hold the other
party to the strict terms of the contract.” Id. at *9. However, “if there is to be a waiver, there
must be some proof of consideration or of estoppel.” Id.

       The argument by the Seatons that Wise waived their nonperformance is without merit.
Wise’s conduct does not represent a clear or express intent to waive any condition. There
is no allegation that Wise “actively induced” the Seatons to breach the title commitment
clause or interfered with their ability to perform their obligations. There also is no evidence

                                               -11-
that the Seatons paid Wise to ignore the strict time requirements of the contract. The actions
by Wise after the Seatons’ breach – attempted renegotiation and failed attempts to secure
financing – do not constitute waiver as a matter of law. The Seatons cannot establish that
Wise waived any right it had to hold them to their contractual obligations.

       The Seatons also argue that the trial court applied an incorrect summary judgment
standard of review because it allegedly found that they were not entitled to specific
performance as a remedy due to their termination of the Agreement in the June 4, 2008 letter.
The trial court observed that the Seatons’ attorney stated clearly that they treated the contract
as “terminated” and mentioned toward the end of its ruling that the Agreement “was also
treated as terminated by the sellers . . . upon [Wise’s] withdrawal of [the] escrow deposit.”
We do not find, however, that the trial court made a specific ruling. Nowhere in its ruling
did the trial court consider or refer to the post-Hannan standard. Moreover, under either
standard, the Seatons materially breached the Agreement and lost the ability to require
Wise’s performance as a matter of law.

      We find that the evidence does not preponderate against the findings of the trial court
that Wise was entitled to an award of summary judgment.

                                     V. CONCLUSION

      The judgment of the trial court is affirmed, and the case is remanded for any further
proceedings that may be required. The costs on appeal are taxed to the appellants, Paul Ray
Seaton and David R. Seaton.

                                                     _________________________________
                                                     JOHN W. McCLARTY, JUDGE

                                              -12-