Court Opinion

ID: 1068466
Source: CourtListenerOpinion
Date Created: 2013-10-09 19:29:46.850791+00
Date Added: 2024-06-11T12:19:05.763748
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                             AT NASHVILLE
                                    August 8, 2002 Session

HARPER-WITTBRODT AUTOMOTIVE GROUP, LLC v. SAM TEAGUE,
                      ET AL.

                 Direct Appeal from the Chancery Court for Dickson County
                         No. 7010-01   Robert E. Burch, Chancellor

                   No. M2001-02812-COA-R3-CV - Filed November 6, 2002

This is an appeal from an order of summary judgment enforcing an option to purchase clause in a
lease for commercial property. The trial court awarded summary judgment to the plaintiff, finding
it had exercised its option under the contract. We reverse summary judgment, finding a genuine
issue of material fact as to the purchase price of the property.

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

DAVID R. FARMER , J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J., W.S.,
and ALAN E. HIGHERS, J., joined.

J. Thomas Martin, Nashville, Tennessee, for the appellants, Sam Teague and Sam Teague Chrysler,
Inc.

Benjamin C. Regen, Dickson, Tennessee, for the appellee, Harper-Wittbrodt Automotive Group,
LLC.

                                             OPINION

       This cause of action requires us to interpret an option to purchase clause contained in a lease
for commercial property. Tenant Harper-Wittbrodt Automotive Group (“Harper-Wittbrodt”) and
owner Sam Teague and Sam Teague Chrysler, Inc. (“Teague”) entered into a five-year lease
agreement beginning January 2, 1996, and ending on January 2, 2001. Paragraph 31 of the
agreement contained an option to purchase the property at the end of the lease period, providing:

       Sixty (60) months following the execution date of this Agreement, Tenant shall have
       the right and option to purchase the premises, by giving written notice to Landlord
       of Tenant’s intent to do so no later than ninety (90) days prior to the expiration of the
       initial term or any renewal term. The purchase price for the premises if the option
       is exercised shall be the then fair market value of the premises payable in cash at
       closing. No rent shall be applied to the purchase price. Rent shall be prorated to
       date of closing, if applicable. Closing shall be held at a place in Dickson County,
       Tennessee, designated by Landlord, with any attorney’s fee for such closing to be
       split between the parties. Landlord shall provide a good and valid Warranty Deed at
       closing. All other closing costs shall be paid by Tenant. Tenant may, at its option,
       pay all or any portion of the outstanding and unpaid principal and interest due by
       Landlord to the Underhills pursuant to the promissory note dated August 5, 1994 in
       the original amount of $500,000.00 by and between Landlord as maker and the
       Underhills as payee, including any extensions or renewals thereof (the “Underhill
       Note”). Any payments made by Tenant on the Underhill Note shall be credited
       against and reduce the next occurring lease payments due to Sam Teague Chrysler,
       Inc. set forth in paragraph 30(i) hereinabove and no further lease payments shall be
       due or payable to the Underhills as provided in paragraph 30(ii) hereinabove if the
       Underhill Note has been paid in full by Tenant. Landlord agrees that it shall not
       pledge, mortgage or otherwise encumber the premises during the term of this lease,
       including any renewals or extensions thereof, other than the encumbrance represented
       by the Underhill Note. If the parties cannot agree upon the fair market value, each
       shall obtain an appraisal from a duly certified appraiser, but such appraisals shall be
       based solely upon a comparable sales valuation approach and/or cost approach, and
       the income approach to valuation shall expressly not apply. The two appraisal
       amounts thus obtained shall be averaged to obtain a single amount, which shall be
       the purchase price unless either party declines to accept same within fifteen (15) days
       after receiving complete written copies of the appraisal reports. If either party
       declines to accept the price thus computed, he shall promptly notify the other party
       in writing and secure the services of a third appraiser. The value obtained by the
       third appraiser shall be averaged with the value of the other appraisal closest to the
       third appraisal and the amount so determined shall be the purchase price. In all
       events all appraisers shall be independent parties having no direct or indirect
       financial interest in either party or any affiliated entity and neither indebted to nor
       employed by either party or any other party affiliated with these parties. Any
       purchase price determined by appraisal or otherwise shall be reduced in amount by
       the fair market value of any and all leasehold improvements made to the premises by
       Tenant.

Paragraph 28 of the contract also included a Holdover provision which stated:

       Should Tenant continue in possession after the end of the term herein with
       permission of Landlord, it is agreed that the tenancy thus created can be terminated
       by either party giving to the other party not less than thirty (30) days’ written notice
       to expire on the day of the month from which the tenancy commenced to run. In so
       continuing, Tenant agrees to pay a monthly rental of TWELVE THOUSAND FIVE

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       HUNDRED AND 00/100 ($12,500.00) DOLLARS per month and to keep and fulfill
       all other covenants, conditions and agreements.

Paragraph 32 of the agreement provided conditions for renewal of the lease for additional five (5)
year terms. The lease also contained a integration clause and required that any modification must
be in writing and signed by both parties.

        On September 25, 2000, Harper-Wittbrodt notified Teague of its intent to purchase the
property and offered a purchase price $1,124,941.11 This amount reflects an average of two (2)
appraisals obtained by Harper-Wittbrodt ($1,550,000 and $1,510,000), less $405,058.89 which
Harper-Wittbrodt contends is the value of leasehold improvements. Teague rejected Harper-
Wittbrodt’s appraisals on October 12, and on October 17 requested documentation regarding the
leasehold improvements. On November 14, Harper-Wittbrodt sent Teague basic information
regarding the improvements. Teague requested more detailed information and, in December,
Harper-Wittbrodt delivered additional documentation. Teague submits that this information was
insufficient to determine the fair market value of the improvements. Throughout the month of
December, Harper-Wittbrodt emphasized that it intended to purchase the property no later than
January 2, 2001. Teague began contacting appraisers in November of 2000, but was unable to obtain
appraisals of the property until April and May of 2001. These appraisals were for $1,950,000 and
$1,800,000. Additionally, Teague’s appraiser disagreed with the valuation of the leasehold
improvements submitted by Harper-Wittbrodt, and stated that they were difficult to analyze because
they seemed to include maintenance items and items of personal benefit that would not enhance the
value of the property.

        On January 2, 2001, Harper-Wittbrodt tendered $1,124,941.11 at a “closing” which Teague
did not attend. On January 3, 2001, Harper-Wittbrodt filed a complaint against Teague to enforce
the option to purchase. Harper-Wittbrodt moved for summary judgment on March 3, which the trial
court awarded on June 28.

       The judgment of the trial court orders specific performance pursuant to which:

               (1) Teague was ordered to convey the property to Harper-Wittbrodt no later
       than forty-five (45) days from the entry of the order, the specific date to be provided
       by Harper-Wittbrodt’s attorney to Teague’s attorney no later than seven (7) calendar
       days prior. The court ordered Teague on that date to there and then execute,
       acknowledge and deliver to Harper-Wittbrodt a Warranty Deed conveying the
       property in fee simple, subject only to the liens and encumbrances arising from
       Dickson city and county real estate taxes due but not yet payable for the current year.

              (2) The purchase price was determined to be $1,124,941.11, which Harper-
       Wittbrodt was ordered to deliver to Teague at the closing ordered above. The
       purchase price was to be reduced by:

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                      (a) amounts necessary to discharge in full any liens in favor
              of the State of Tennessee;

                      (b) amounts necessary to pay the full indebtedness (principal
              plus interest) of the August 5, 1994, promissory note;

                     (c) sums necessary to discharge in full any liens other than the
              tax amounts noted     above;

                     (d) all sums paid by Harper-Wittbrodt to Teague between
              January 2, 2001, and the closing date;

                     (e) all sums paid by Harper-Wittbrodt to the holder of the
              Note between January 2, 2001, and the closing date;

                      (f) one-half of the closing agent’s fee;

                     (g) the cost of preparing the Warranty Deed and a release of
              the Deed of Trust;

                      (h) the cost of filing the release of the Deed of Trust for
              registration in the office of the Register of Deeds;

                    (i) Harper-Wittbrodt’s attorney’s fees in the amount of
              $13,740.00.

              (3) Harper-Wittbrodt was found not liable for rent for any period after January
       2, 2001.

               (4) Harper-Wittbrodt was found not liable for interest on any unpaid portion
       of the purchase price for any period after January 2, 2001.

              (5) All court costs were taxed to Teague.

Teague’s motion to alter or amend the judgment was denied, and this appeal followed.

                                              Issues

       The issues presented by Teague on appeal to this Court, as we perceive them, are:

              (1) Whether the trial court erred in determining that the lease agreement
       required that, in the event Harper-Wittbrodt exercised its option to purchase, the
       closing date would be January 2, 2001.

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               (2) Whether the court erred by awarding summary judgment regarding the
       valuations of the property and leasehold improvements.

       Harper-Wittbrodt raises the additional issue of whether the trial court erred in setting the
award of its attorney’s fees, submitting that the award was too low.

                                         Standard of Review

        The interpretation of a contract is a matter of law. Guiliano v. Cleo, Inc., 995 S.W.2d 88,
95 (Tenn. 1999). We review the trial court’s conclusions on matters of law de novo, with no
presumption of correctness. Tenn. R. App. P. 13(d); Bowden v. Ward, 27 S.W.2d 913, 916 (Tenn.
2000). Summary judgment is appropriate where there are no genuine issues regarding material facts
of the cause of action, and the moving party is entitled to a judgment as a matter of law . Tenn. R.
Civ. P. 56.04. In determining whether to award summary judgment, the court must view the
evidence in the light most favorable to the nonmoving party, drawing all reasonable inferences in
favor of the nonmoving party. Staples v. CBL & Assoc., 15 S.W.3d 83, 89 (Tenn. 2000). Summary
judgment should be awarded only when a reasonable person could reach only one conclusion based
on the facts and inferences drawn from those facts. Id. When a party makes a properly supported
motion for summary judgment, the burden shifts to the nonmoving party to establish the existence
of disputed material facts. Id.

                                   Establishment of Closing Date

        When a claim involves disputes concerning the interpretation of a contract, the court must
construe the various provisions of the contract together, seeking to ascertain the intention of the
parties based upon the usual, natural, and ordinary meaning of the language they employed.
Guiliano, 995 S.W.2d at 95. The option to purchase clause of this lease agreement provided:

       Sixty (60) months following the execution date of this Agreement, Tenant shall have
       the right and option to purchase the premises, by giving written notice to the
       Landlord of Tenant’s intent to do so no later than ninety (90) days prior to the
       expiration of the initial term or any renewal term.

It is undisputed that Harper-Wittbrodt notified Teague of its intent to exercise this option within the
proscribed time. What is disputed is whether the agreement required a closing date of January 2,
2001. Reading the agreement as a whole, we believe that it did not.

         Harper-Wittbrodt contends that paragraph 21 of the lease, which provides, “[i]t is understood
and agreed between the parties hereto that time is of the essence in all of terms [sic] and provisions
of this Lease,” combined with the fact that it acquired the right to purchase the property “[s]ixty (60)
months following the execution date of [the] Agreement,” establishes a closing date of January 2
should the option to purchase be exercised. Teague argues that the lease is silent as to the closing
date, and that the agreement anticipates closing within a reasonable time. Teague further submits

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that the issue of whether Teague acted reasonably to perform in a timely manner is an issue to be
resolved by a finder of fact.

        After reviewing the contract in its entirety, we find that the agreement did not establish a
specific closing date. The plain language of the agreement provided that Harper-Wittbrodt would
have the right to purchase the property sixty (60) months following the date of the lease, not before.
A closing date prior to January 2, therefore, clearly was not anticipated by the parties. The clause
providing the option to purchase also stipulated that no rent would be applied to the purchase price,
and that rent would be prorated to the date of closing. Since Harper-Wittbrodt had no right to
purchase the property before January 2, the proration provision could have applied only to rent sums
paid for periods between January 2 and the closing date.

        The lease agreement further established the valuation mechanism to be followed by the
parties to determine the purchase price. This process is one which could reasonably be expected to
take more than the ninety days between the time Harper-Wittbrodt’s notice of intent was required
and an anticipated closing date. The clause provided an opportunity for the parties to agree to a
purchase price without appraisals, obtainment of an appraisal by each should they not agree, fifteen
days for rejection of the other parties’ appraisal, and, in the event of rejection, the securing of a third
appraisal to be averaged with the closer of the previous two to reach an agreed upon price. The only
stipulation of a time period within this valuation mechanism was that a party rejecting the other’s
appraisal must do so within fifteen (15) days after receiving written copies of the appraisal reports.
The mechanism did not contemplate a precise time-table, nor did it stipulate that closing would occur
within a defined period. The agreement did, however, provide for holdover tenancy. This provision
reasonably would have applied to any period between the termination of the five-year lease and a
closing date pursuant to the exercise of the option to purchase.

       In light of the foregoing, we believe the agreement evidenced an intent to close within a
reasonable period in anticipation of a potentially protracted valuation process. The determination
of what would constitute a reasonable period in light of the circumstances is a matter to be
determined by a finder of fact. We accordingly reverse summary judgment on this issue.

                                          Property Valuation

        Harper-Wittbrodt maintains that there is no genuine issue of material fact regarding the value
of the property. Harper-Wittbrodt’s argument, as we perceive it, is that since a January 2 closing
date was mandated by the agreement, appraisals obtained by Teague after January 2 are inadmissible
as evidence of valuation. Harper-Wittbrodt contends that Teague is therefore estopped from
contesting the value of property based on appraisals obtained after January 2. According to Harper-
Wittbrodt’s reasoning, the only appraisals therefore admissible to evidence the value of the property
are those obtained before January 2 and introduced by Harper-Wittbrodt. In light of our holding on
the issue of the closing date above, we reject this argument. Harper-Wittbrodt further contends that
Teague acted unreasonably by not obtaining appraisals more promptly and by attempting to base the
valuation on the income method of valuation specifically rejected by the lease. Harper-Wittbrodt

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does concede, however, that “both of Teague’s appraisers were in fact able to appraise the [r]eal
[p]roperty without using the [d]ealership’s confidential financial information,” i.e., appraisals not
based on the income approach to valuation. Whether Teague acted unreasonably under the
circumstances is a matter for the trier of fact.

        Finally, Harper-Wittbrodt submits that it followed the valuation procedures delineated in the
agreement, while Teague did not. It appears to this Court, however, that neither party followed the
agreed upon procedures. Harper-Wittbrodt submits that in obtaining two appraisals, averaging them,
and submitting the average as the proposed purchase price, it merely anticipated a disagreement over
the valuation. Whatever Harper-Wittbrodt intended, this was not the mechanism provided by the
contract. The contractual provisions are stated above and do not need to be repeated here. It is
sufficient to note that while this agreement clearly did not anticipate every pitfall, it did provide a
mechanism which should have been followed by both parties in good faith.

        Since we find that the lease agreement did not require a closing date of January 2, appraisals
obtained by Teague after that date are admissible as evidence of the value of the property. The
valuations should be based on the fair market value of the improved property based on the
comparable sales valuation and/or cost approach, not on the income approach. This amount must
be determined in accordance with the method prescribed in the lease agreement. A genuine issue
of material fact exists as to this value.

        Additionally, the agreement provided that the purchase price of the property would be the
value of the property less the value of leasehold improvements made by Harper-Wittbrodt. The lease
agreement unambiguously stipulated that such improvements shall be valued at the fair market value
of the improvements. Fair market value is defined as “the fair or reasonable cash price for which
the property can be sold on the market.” Black’s Law Dictionary 537 (5th ed.1979). This is not
necessarily the cost of the improvements to Harper-Wittbrodt at the time the specific improvements
were made. An issue of fact remains regarding the value of these improvements, without which the
final purchase price cannot be ascertained. Summary judgment on the issue of the value of the
property accordingly is reversed.

                          Award of Attorney’s Fees to Harper-Wittbrodt

       This issue of the award of attorney’s fees to Harper-Wittbrodt is pretermitted in light of the
foregoing.

                                             Conclusion

        We find that the option to purchase clause contained in the lease agreement in this case did
not stipulate a particular closing date, but anticipated closing within a reasonable time. We further
determine that genuine issues of material fact exist regarding the valuation of the property and the
value of the leasehold improvements, both of which must be ascertained in order to arrive at the
purchase price. We accordingly reverse summary judgment and remand for further proceedings

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consistent with this opinion. Costs of this appeal are taxed to the appellee, Harper-Wittbrodt
Automotive Group, LLC.

                                                   ____________________________________
                                                   DAVID R. FARMER, JUDGE

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