Court Opinion

ID: 4687090
Source: CourtListenerOpinion
Date Created: 2021-05-14 21:15:25.396454+00
Date Added: 2024-06-11T08:04:38.712762
License: Public Domain

05/14/2021
               IN THE COURT OF APPEALS OF TENNESSEE
                           AT NASHVILLE
                         April 6, 2021 Session

                 LVH, LLC V. FREEMAN INVESTMENT, LLC

               Appeal from the Chancery Court for Davidson County
                No. 19-515-I    Patricia Head Moskal, Chancellor

                            No. M2020-00698-COA-R3-CV

A property development company brought suit against a property owner for specific
performance to enforce an option agreement entered into between the company and the
property owner. The trial court held that the option agreement was enforceable and
awarded specific performance and damages to the development company. We have
concluded that the option agreement is not sufficiently definite with respect to the option
price and, therefore, is not an enforceable contract. We reverse the decision of the trial
court and remand for further proceedings regarding the development company’s alternative
cause of action for unjust enrichment.

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

ANDY D. BENNETT, J., delivered the opinion of the Court, in which FRANK G. CLEMENT,
JR., P.J., M.S., and W. NEAL MCBRAYER, J., joined.

J. Ross Pepper, Lara Elizabeth Boston Ford, and Matt E. Pulle, Nashville, Tennessee, for
the appellant, Freeman Investment, LLC.

Thomas T. Pennington and Emma Boyd Elliott, Nashville, Tennessee, for the
appellee, LVH, LLC.

                                       OPINION

                       FACTUAL AND PROCEDURAL BACKGROUND

     This case concerns a twelve-acre parcel of property (“the Property”) near the
Wedgewood-Houston neighborhood in Nashville. Freeman Investment, LLC (“FI”) owns
the Property,1 and Lucy Freeman serves as the managing member of FI. LVH, LLC
(“LVH”) is a company that purchases real estate for development projects.2 LVH
identified the Property as a possible site for a multi-family real estate development. Kent
Campbell, vice president and corporate representative for LVH, negotiated with Hiram
Lewis, FI’s real estate broker, about LVH’s possible purchase of the property.

       In February 2018, LVH and FI entered into an option agreement (“the Agreement”)
granting LVH an exclusive option to purchase the property. In June 2018, the parties
amended the Agreement to extend the option period to March 15, 2019. When LVH and
FI entered into the Agreement, FI was owned by the three Freeman siblings—Lucy
Freeman, Susan Freeman, and Paul Freeman—in equal shares. In August 2018, Paul
transferred his shares to Lucy, who now owns two-thirds of the shares in FI.

        The Property lies in a floodplain, and a large part of it lies in a floodway. When the
parties signed the Agreement, the Property was zoned for industrial warehousing or
distribution (“IWD”). After the Agreement was signed, LVH began its due diligence to
determine the development potential of the Property. Contrary to LVH’s original
understanding, the Adaptive Residential Development standards were not applicable. For
LVH to develop the Property as the company envisioned, the Metro planning commission
required LVH to seek rezoning of the Property as a Specific Plan-Residential (“SPR”)
district. According to LVH, the company expended “significant resources” to complete
the SPR approval process. LVH’s specific plan received approval from the planning
commission in August 2018 and from the Metro council in November 2018. The specific
plan allowed for the construction of a maximum of 130 units on the Property.

       The Freeman family’s ownership of the Property dates back to a Revolutionary War
grant. In 2000, Lucy Freeman recorded with the register of deeds a survey of the Property
with her notarized affidavit, which states in part as follows:

          I, Lucy Ann Freeman, partner and administrative manager of Freeman
          Investment LLC, a Tennessee limited liability corporation, do submit for
          public record this survey of our property located at 1700 Nolensville Pike
          and on Moore Av. in Nashville, Davidson Co., Tennessee. This property is
          owned in full by Freeman Investment LLC and is shown as Tract 3 and Tract
          4 of this survey dated July 2000.

As part of its due diligence process, LVH obtained a survey and title searches on the
Property. A second title search revealed that there was a 70-foot strip within the Property
that was owned by the three Freeman siblings rather than by FI. In a February 19, 2019
1
 For purposes of this appeal, we need not consider the effect of evidence indicating that a strip of the
Property is not owned by FI but by the three Freeman siblings.
2
    LVH and Core Development, LLC are both owned by a parent company, Village People, LLC.
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email to Mr. Campbell, LVH’s attorney advised that, “Since all 3 siblings are part of the
entity [FI], I don’t see a big problem, but if you like we could revise the PSA [purchase
and sale agreement] so it is between LVH and both the Freeman entity and all 3 siblings.”
Lucy Freeman testified that she learned of the siblings’ ownership of part of the Property
sometime after August 8, 2018.

       On February 26, 2019, LVH notified FI by letter that LVH was exercising its option
to purchase the property. In a draft contract of sale, LVH set forth a price of $2,500,000
for the Property. According to Mr. Campbell, LVH had determined that, under all
applicable zoning and grading requirements, a maximum of 155 parking spaces could be
constructed on the Property. Based upon the ratio of one parking space per bedroom and
the mix of one-bedroom and two-bedroom units described in the Agreement, LVH
calculated that 119 units could be developed on the Property. LVH applied the minimum
contract price, based upon the construction of 125 units at a price of $20,000 per unit. In
response to LVH’s letter of intent to exercise the option, FI informed LVH that it was
willing to sell the property at a price of $9,975,000.

       LVH filed suit against FI in April 2019 for specific performance and unjust
enrichment. In its amended answer, FI took the position that the Agreement was not an
enforceable contract and that, if the Agreement was enforceable, LVH breached the
contract by refusing to pay the agreed purchase price. After some discovery, both parties
moved for summary judgment. In November 2019, the trial court determined that, under
the terms of the Agreement, the purchase price was “sufficiently ascertainable to be
enforceable” and that FI breached the contract. Therefore, the trial court granted partial
summary judgment to LVH on these issues. Finding disputed facts or insufficient proof to
determine damages and LVH’s entitlement to specific performance, the court denied both
parties’ motions for summary judgment on those issues. The trial court further denied both
parties’ motions for summary judgment on the unjust enrichment claim.

       The case proceeded to trial in November 2019 on the reserved issues. The court
heard testimony from Mr. Campbell and Lucy Freeman. For the first time, FI asserted that
specific performance was impossible because it did not own all of the property at issue.
Based upon the uniqueness of the property, the trial court determined that compensatory
damages were inadequate and that LVH was entitled to specific performance. The court
further concluded that FI failed to prove impossibility of performance and that any
discrepancy in the ownership or identification of the property was “subject to relatively
easy corrective measures through execution of a quitclaim deed by the Freeman siblings to
[FI].” The trial court ruled that LVH was entitled to delay damages for lost rental income
from the tenant on the property (in the amount of $105,241.28).

       FI appealed the trial court’s decision and raises the following issues before this
court: (1) whether the trial court erred by granting partial summary judgment to LVH that
the Agreement was an enforceable contract and in denying summary judgment to FI that

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the Agreement was not an enforceable contract; (2) whether the trial court abused its
discretion in awarding LVH specific performance requiring FI to convey the property at
issue via a general warranty deed for the price of 2.5 million dollars; and (3) whether the
trial court erred in awarding compensatory damages to LVH for the lost rental value of the
property.

                                         ANALYSIS

       I.      Summary judgment regarding enforceability of option agreement.

       We must first determine whether the trial court erred in granting summary judgment
to LVH and denying summary judgment to FI on the issue of the enforceability of the
Agreement. LVH argues that the trial court properly concluded that the minimum price in
the Agreement was “ascertainable” and that the Agreement is enforceable. FI counters that
the price remained open to negotiation once the option was exercised and that the
Agreement is merely an agreement to agree, which is unenforceable under Tennessee law.

       We review a trial court’s summary judgment determination de novo, with no
presumption of correctness. Rye v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d
235, 250 (Tenn. 2015). This means that “we make a fresh determination of whether the
requirements of Rule 56 of the Tennessee Rules of Civil Procedure have been satisfied.”
Id. We “must view the evidence in the light most favorable to the nonmoving party and
must draw all reasonable inferences in that party’s favor.” Godfrey v. Ruiz, 90 S.W.3d 692,
695 (Tenn. 2002); see also Acute Care Holdings, LLC v. Houston Cnty., No. M2018-
01534-COA-R3-CV, 2019 WL 2337434, at *4 (Tenn. Ct. App. June 3, 2019). Summary
judgment is appropriate “if 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.

       The proper interpretation of a contract presents a question of law, which we review
de novo with no presumption of correctness. Four Eights, LLC v. Salem, 194 S.W.3d 484,
486 (Tenn. Ct. App. 2005). The principles and guidelines of contract interpretation are
well-established and include the following:

       “A cardinal rule of contractual interpretation is to ascertain and give effect to
       the intent of the parties.” Allmand [v. Pavletic], 292 S.W.3d [618,] 630
       [(Tenn. 2009)] (citing Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611
       (Tenn. 2006)). We initially determine the parties’ intent by examining the
       plain and ordinary meaning of the written words that are “contained within
       the four corners of the contract.” 84 Lumber Co. v. Smith, 356 S.W.3d 380,
       383 (Tenn. 2011) (citing Kiser v. Wolfe, 353 S.W.3d 741, 747 (Tenn. 2011)).

                                             -4-
       The literal meaning of the contract language controls if the language is clear
       and unambiguous. Allmand, 292 S.W.3d at 630.

Dick Broad. Co., Inc. of Tenn. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 659 (Tenn. 2013).
In determining the intent of the parties, a court should consider the parties’ “situation, their
motivations, their respective interests, and other contextual circumstances.” Individual
Healthcare Specialists, Inc. v. BlueCross BlueShield of Tenn., Inc., 566 S.W.3d 671, 692
(Tenn. 2019).

       An option agreement is “‘a unilateral contract whereby the optioner for a valuable
consideration grants the optionee a right to make a contract of purchase but does not bind
the optionee to do so.’” Keck v. Meek, No. E2017-01465-COA-R3-CV, 2018 WL
3199220, at *10 (Tenn. Ct. App. June 28, 2018) (quoting Kwasniewski v. Lefevers, No.
M2012-01802-COA-R3-CV, 2013 WL 3964788, at *4 (Tenn. Ct. App. July 30, 2013)).
For an option contract (or any contract) to be enforceable, “the parties must agree on the
material terms.” Abbott v. Abbott, No. E2015-01233-COA-R3-CV, 2016 WL 3976760, at
*4 (Tenn. Ct. App. July 20, 2016). The contract terms must be “sufficiently definite to
enable a court to give it an exact meaning.” United Am. Bank of Memphis v. Walker, 1986
WL 11250, at *1 (Tenn. Ct. App. Oct. 10, 1986). Price is generally considered an essential
term in a sales contract. Abbott, 2016 WL 3976760, at *4.

       Both parties cite Four Eights, LLC v. Salem, 194 S.W.3d at 484, a case involving
the enforceability of a tenant’s option to purchase. The lease in Four Eights provided that
the tenant would have the option to purchase the property at “its then fair market value”
and that “Fair Market Value must be determined by the Lessor and Lessee, negotiating in
good faith, within thirty (30) days of Lessee [sic] notice to Lessor of the election to
purchase the Premises.” Four Eights, 194 S.W.3d at 486. This court affirmed the trial
court’s determination that “there was no enforceable option to purchase.” Id. at 486, 488.
In reaching this conclusion, we stated:

       As the Trial Court found, if the parties had simply utilized the term “fair
       market value[,”] then the Court could have ascertained the same based on its
       common usage. By adding the provision that “Fair Market Value must be
       determined by the Lessor and Lessee, negotiating in good faith” (emphasis
       supplied), the parties basically made an “agreement to agree” to something
       in the future, and such agreements have generally been held unenforceable,
       both in this jurisdiction and others.

             For example, in the case of United American Bank of Memphis v.
       Walker, 1986 WL 11250 (Tenn. Ct. App. 1986), this Court stated:

           In order for a contract to be binding it must spell out the obligation
           of the parties with sufficient definiteness that it can be performed.

                                             -5-
           All the essential terms of a contract must be finally and definitely
           settled. None must be left to determination, by future negotiations.
           It clearly appears from this writing that there was no definite contract
           or mutually agreed upon option to sell or any price determined in the
           agreement. As was said in the case of King v. Dalton Motors, Inc.,
           109 N.W.2d 51 (Minn. 1961) in which a plaintiff purchaser had a
           “first option to purchase said property . . . at a price to be negotiated
           and to be agreeable between the parties at the time of the sale.” The
           court refused to enforce this contract saying:

              It is a fundamental rule of law that an alleged contract which is
              so vague, indefinite and uncertain as to place the meaning and
              intent of the parties in the realm of speculation is void and
              unenforceable. Consequently where substantial and necessary
              terms are specifically left open for future negotiations, the
              purported contract is fatally defective. On the other hand, the
              law does not favor the destruction of contracts because of
              indefiniteness and if the terms can be reasonably ascertained in
              a manner prescribed in the writing, the contract will be
              enforced.

           Such a provision provides no standard for ascertaining the price or
           any other conditions of the sale and is, in our opinion, fatally
           uncertain and unenforceable in any form of action.
Id. at 486-87. Based upon these principles, this court determined that, “The option in this
case was not definite enough regarding price such that specific performance could be
decreed.” Id. at 488.

       In another case, Huber v. Calloway, No. M2005-00897-COA-R3-CV, 2007 WL
2089753, at *1-2 (Tenn. Ct. App. July 12, 2007), this court reversed the trial court’s
decision ordering an independent appraisal and requiring the sellers to sell the property to
the buyers at the amount determined by the appraisal. On appeal, we determined that the
option contract was not enforceable. Huber, 2007 WL 2089753, at *1. The operative
provision in that case stated: “Purchase price to be mutually agreed upon based on
[independent] appraisal at time of notice to sell.” Id. The sellers argued that this language
“requiring the parties to establish a mutually agreed upon price is merely an ‘agreement to
agree’ and, therefore, unenforceable as a contract.” Id. at *3. The buyers asserted that the
provision that the price be based upon on independent appraisal “reflects that the parties
had conclusively agreed on the mechanism by which the purchase price would be set.” Id.
This court adopted the sellers’ argument, reasoning as follows:

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               [Buyers] vigorously maintain that the phrase “based on independant
       [sic] appraisal” reflects the parties’ intention to set the selling price firmly at
       the price arrived at by a real estate appraiser. Although the language lacks
       specificity, it is not inconceivable that it could be of such a definite nature as
       to be enforceable if it stood alone. See Graham County Elec. Cooperative,
       Inc. v. Town of Safford, 322 P.2d 1078, 1080-81 (Ariz. 1958); Hanna v.
       Bauguess, 430 A.2d 104, 108-09 (Md. 1981). Far from standing alone,
       however, the vague language is juxtaposed with language that is crystal
       clear-“price to be mutually agreed upon”-the plain, unambiguous meaning
       of which is that the parties will complete their transaction only after they each
       agree on the selling price.

              Although “based on independant [sic] appraisal” may have several
       plausible interpretations, the only possible meaning of the contract’s
       language, in the context of the entire agreement, is that the parties agreed to
       open negotiations in the future regarding the purchase price of the land and
       that those negotiations would result in a sale only if the parties reached an
       agreement on price. See Four Eights, LLC v. Salem, 194 S.W.3d at 487.
       While it is beyond doubt that the parties envisioned that an independent
       appraisal would be incorporated into this process, any uncertainty in the
       language mandating an appraisal does nothing to change the requirement of
       mutual agreement.

              [Buyers] ask us to ignore the clear language requiring mutual
       agreement and impose in its place their own interpretation of “based on
       independant [sic] appraisal.” This we cannot do. The facts of this case do
       not present a situation in which the parties have agreed to an indefinite but
       ascertainable price. Neither have the parties explicitly agreed to a
       “reasonable” price derived from an appraisal. The clear implication is that
       the parties intended that a price would be negotiated in the future. This is
       perhaps a classic example of the “agreement to agree.” See 1 Corbin on
       Contracts § 4.3, at 572. Construing the parties’ agreement as a whole, it is
       apparent that option agreement is not sufficiently definite to constitute a
       contract.
Id. at *5 (emphasis added) (footnote omitted); see also Abbott, 2016 WL 3976760, at *4,
*6 (concluding that a deed provision giving the holder a right of first refusal to purchase
property “once a price is agreed upon” was an unenforceable agreement to agree because
the provision did not include “a sales price or a method to determine a sales price”); Keltner
v. Estate of Simpkins, No. M2014-02023-COA-R3-CV, 2016 WL 1247704, at *1, *3
(Tenn. Ct. App. Mar. 29, 2016) (holding that a contract giving a buyer the option to
purchase a tract of land, for which “a fair and equitable price . . . will be established at a

                                              -7-
later date,” was unenforceable because “the purchase price is not reasonably ascertainable
from the plain terms of the contract”).

         In the present case, the key provisions of the Agreement regarding the option price
state:

         2. Option Price. To be mutually agreed upon by Buyer and Seller within
         thirty (30) days following the expiration of the Option Period, at a price of
         $20,000 per residential unit (upon project completion) that can be reasonably
         developed on the property, subject to the following parameters:

            (a) Option Price to be based on a minimum of 125 units.
            (b) Site and building development subject to Metro Bulk Regulations of
            current IWD zoning, as modified under Adaptive Residential
            Development standards.
            (c) Building height limited to 30 feet at street setback, and not more than
            4 stories where permitted by Slope of Height Control Plan (1.5 to 1).
            (d) All parking requirements to be met by surface parking; structured
            parking will not be considered. Parking ratio of 1 space per bedroom.
            (e) Unit mix to be approximately 70% 1 Bedroom and 30% 2 Bedroom,
            with average unit size of 860 square feet.
            (f) All required storm water detention and treatment to be accomplished
            on site without use of underground storage.
            (g) Site development subject to all governing authorities as pertains to
            floodplain development.
            (h) Within fourteen (14) calendar days from expiration of the term of this
            Option or upon Buyer notifying Seller of its intention to exercise its
            option.

         3. Option Earnest Money. Upon execution of this agreement, Buyer shall
         deposit with the Chas. Hawkins Co., Inc. twenty thousand and no/100 dollars
         ($20,000.00) as Earnest Money. Said Earnest Money shall be either refunded
         to Buyer in the event buyer terminates this agreement or Buyer and Seller
         cannot agree to an Option Price or partnership terms. The refunding of the
         Earnest Money, in the event that the Buyer terminates this Agreement, or the
         Buyer and Seller cannot come to an agreement on an Option Price or
         partnership terms, shall be contingent upon Buyer delivering to Seller any
         and all due diligence items, reports, etc. gathered during the Option Term.
         In the event Buyer does not deliver said items to Seller within five (5)
         business days of terminating this agreement or not coming to terms on an
         Option Price or partnership terms, Seller shall retain the Earnest Money as
         compensation.

                                             -8-
(Emphasis added).

       In arguing that the option price is reasonably ascertainable, LVH asserts that the
price parameters set forth in paragraph 2 constitute a specific formula for computing the
purchase price and do not leave the price open to future negotiation. We respectfully
disagree. We must consider the Agreement provisions “in the context of the entire
contract.” Huber, 2007 WL 2089753, at *4 (citing D & E Constr. Co. v. Robert J. Denley
Co., 38 S.W.3d 513, 518 (Tenn. 2001), and Realty Shop, Inc. v. RR Westminster Holding,
Inc., 7 S.W.3d 581, 597 (Tenn. Ct. App. 1999)). Although paragraph 2 does establish
parameters for the purchase price, it also states that the option price is to be mutually agreed
upon by the parties within 30 days of the end of the option period. Even if we could
construe paragraph 2 as sufficiently definite on the price term, paragraph 3 provides that
the earnest money is to be returned to the buyer in the event the buyer and the seller cannot
agree on a price. The plain and unambiguous language of the Agreement contemplates
that the option price is to be agreed upon by the parties and that the parties may not agree
upon it. Thus, the price is not reasonably ascertainable by a court from the provisions of
the agreement. See Huber, 2007 WL 2089753, at *5. Rather, the Agreement provides that
the price will be determined “‘by future negotiations.’” Four Eights, 194 S.W.3d at 487
(quoting United Am. Bank of Memphis, 1986 WL 11250, at *2).

        We, therefore, conclude that the Agreement is no more than an agreement to agree
and is unenforceable.3 The trial court erred in granting summary judgment in favor of LVH
and in denying FI’s motion for summary judgment on this issue.

       In granting LVH’s motion for summary judgment on enforceability, the trial court
concluded that this determination pretermitted LVH’s alternative unjust enrichment claim.
The court proceeded to find, however, that “there are genuine issues of material facts as to
whether a benefit was conferred on [FI] and whether [FI] accepted that benefit.”
Furthermore, the court stated, there was “insufficient proof in the record as to [the] amount
of damages relating to the unjust enrichment claim or the value of the benefit allegedly

3
  In Gurley v. King, this court distinguished between two types of preliminary agreements—one “where
parties agree to later formalize a contract about which there has been complete agreement on all of the
essential issues” and the other “where parties have committed themselves to some of the major terms, but
other essential elements remain to be negotiated.” Gurley, 183 S.W.3d 30, 40 (Tenn. Ct. App. 2005) (citing
Kandel v. Ctr. for Urological Treatment & Research, P.C., No. M2000-02128-COA-R3-CV, 2002 WL
598567 (Tenn. Ct. App. Apr. 17, 2002)). Although Gurley involved the first type of agreement, this court
quoted a New York case stating that a preliminary agreement of the second type could give rise to “‘the
obligation to negotiate the open issues in good faith in an attempt to reach the alternate objective within the
agreed framework.’” Id. (quoting Teachers Ins. & Annuity Ass’n v. Tribune Co., 670 F. Supp. 491, 498
(S.D.N.Y. 1987)). Under Tennessee caselaw, however, such a duty to negotiate in good faith does not arise
“absent an express contractual agreement.” Barnes & Robinson Co., Inc. v. OneSource Facility Servs.,
Inc., 195 S.W.3d 637, 644 (Tenn. Ct. App. 2006); see also S.K. Servs. v. FedEx Ground Package Sys., Inc.,
No. 1:08-CV-158, 2008 WL 5204067, at *3 (E.D. Tenn. Dec. 11, 2008). There is no express provision
imposing a duty to negotiate in good faith in the Agreement between LVH and FI.
                                                    -9-
conferred on [FI].” Therefore, the trial court denied LVH’s motion for summary judgment
on its alternative claim for unjust enrichment. The subsequent trial was limited to the issues
concerning specific performance and damages from FI’s breach of the Agreement.
Because we have determined that the Agreement is not an enforceable contract, the unjust
enrichment claim must be addressed on remand.

                                        CONCLUSION

       The judgment of the trial court is reversed and the case is remanded for further
proceedings consistent with this opinion. Costs of this appeal are assessed against the
appellee, LVH, LLC, and execution may issue if necessary.

                                                     _/s/ Andy D. Bennett_______________
                                                     ANDY D. BENNETT, JUDGE

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