Gary Wynn v. La Maruja Realty Corp.

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
February 17, 2009 Session

GARY WYNN d/b/a WYNN HOMES, INC., ET AL. v.
LA MARUJA REALTY CORP., ET AL.

Appeal from the Chancery Court for Sumner County
Nos. 2006C-219, 2007C-43 Tom E. Gray, Chancellor

No. M2008-01511-COA-R9-CV - Filed September 15, 2009

This case arose from a complaint for specific performance, brought by a developer against a realtor
to compel the realtor to complete the sale of a piece of real property which it had agreed to sell to
the developer’s corporation. The realtor subsequently discovered that the corporation had been
dissolved and moved the court to dismiss the complaint for lack of capacity to contract and lack of
standing. The developer applied for and obtained reinstatement of his corporation and then moved
the court to be allowed to amend his complaint to name it as an additional plaintiff. The trial court
denied the plaintiff’s motion to amend his complaint. We granted this interlocutory appeal to review
that decision. We reverse the trial court.

Tenn. R. App. P. 9 Interlocutory Appeal; Judgment of the Chancery Court Reversed

PATRICIA J. COTTRELL, P.J.,M.S., delivered the opinion of the court, in which FRANK G. CLEMENT ,
JR. and ANDY D. BENNETT , JJ., joined.

Mark B. Reagan, Nashville, Tennessee, for the appellant, Gary Wynn, d/b/a Wynn Homes, Inc.

Joseph Y. Longmire, Jr., Hendersonville, Tennessee, for the appellee, La Maruja Realty Corporation.

John Ray Phillips, Jr., Gallatin, Tennessee, for the appellees, Delano and Delma McCoury.

OPINION

I. A SUIT FOR SPECIFIC PERFORMANCE

The parties entered into a purchase and sale agreement for a 6.87 acre property in
Hendersonville on August 26, 2006. The seller was La Maruja Realty Corporation, which had
bought the property at auction in 2004. The buyer listed in the agreement was Wynn Homes, Inc.
Gary Wynn signed the contract as President of Wynn Homes, Inc. The agreement recited a closing
date of November 14, 2006, and that “[t]ime is of the essence of this Agreement.” No closing
occurred, presumably because a separate lawsuit, which was filed after the purchase and sale
agreement was executed but prior to the scheduled closing, made it impossible for La Maruja to
convey clear title to Wynn.

That lawsuit arose from the 2004 auction for the property. During the bidding, La Maruja’s
agent allegedly entered into an agreement with the agent of adjacent landowners Delano and Delma
McCoury, to sell them a fifty foot wide buffer strip adjacent to the McCoury property. The
McCourys had apparently been bidding on the entire property, and they allegedly agreed to withdraw
from the bidding in exchange for La Maruja’s promise to sell them the buffer strip. On September
7, 2006, the McCourys filed a Complaint for specific performance against La Maruja.1

On February 16, 2007, Mr. Wynn filed his own complaint. The named plaintiff on that
pleading was “Gary Wynn d/b/a Wynn Homes, Inc.” Aside from asking the court to grant him
specific performance on the contract, he also asked for $150,000 “as punitive damages for the
Defendant La Maruja’s fraudulent and intentional misrepresentations.” Mr. Wynn also listed the
McCourys as defendants, although he did not ask the court to grant him any specific relief against
them. The two cases were consolidated by agreed order on April 17, 2007.

During discovery, La Maruja learned that Wynn Homes, Inc. had been administratively
dissolved in 2003. It is unclear when Gary Wynn became aware of the dissolution of the
corporation. La Maruja’s answer, filed June 13, 2007, asserted a number of defenses to the
plaintiff’s claims, including lack of capacity to contract and lack of standing. Since the named buyer
on the real estate contract, “Wynn Homes, Inc.” had been dissolved, the realtor contended that it did
not have the capacity to enter into a binding contract and that the contract was therefore void ab
initio. Further, since the named plaintiff, Gary Wynn, had not signed the contract in his individual
capacity, but only as president of Wynn Homes, Inc., La Maruja contended that he had no standing
to sue in his own name.

II. A MOTION TO AMEND

Mr. Wynn filed an application with the Tennessee Secretary of State to reinstate Wynn
Homes, Inc. as an active Tennessee corporation. He paid several years of back taxes and the required
fees, and on December 18, 2007, the corporation was reinstated. Shortly thereafter, on December
27, 2007, Mr. Wynn filed a motion to amend his complaint to add Wynn Homes, Inc. as a party
plaintiff. See Tenn. R. Civ. P. 15 and 19. La Maruja filed a memorandum in opposition to the
motion.

On February 25, 2008, the trial court conducted a hearing on Mr. Wynn’s motion to amend,
at the conclusion of which it took the matter under advisement. On April 10, 2008, the trial court
filed an order denying the motion to amend as well as a memorandum explaining its reasoning. Mr.
Wynn then moved the court for permission to file an interlocutory appeal of its order, under Tenn.

1
The claim by the McCourys does not play any part in this appeal.

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R. App. P. 9. The trial court granted permission to appeal, and this court concurred, agreeing that
“this is an appropriate case for an interlocutory appeal.”

III. AMENDMENT UNDER THE RULES OF CIVIL PROCEDURE

Mr. Wynn contends that the trial court erred in denying his motion to amend, because naming
Wynn Homes, Inc. as a plaintiff amounts to a mere “a housekeeping matter,” which does not affect
the merits of his claim. He cites Rule 15.01 of the Tennessee Rules of Civil Procedure, which
permits a party to amend its pleadings once as a matter of course before a responsive pleading is
served. Afterwards, “a party may amend the party’s pleadings only by written consent of the adverse
party or by leave of court; and leave shall be freely given when justice so requires.” (Emphasis
added).

Mr. Wynn insists that justice requires that he be allowed to amend. Among other things, he
cites Rule 19.01 of the Tennessee Rules of Civil Procedure, which mandates the joinder of persons
(which includes corporations) whose participation is needed for a just adjudication of the claims at
issue. These include persons who claim an interest relating to the subject matter of the action (in this
case the real property under contract), and who are so situated “that the disposition of the action in
the person’s absence may as a practical matter impair or impede the person’s ability to protect that
interest.”

For its part, La Maruja contends that the question of whether or not to allow a plaintiff to
amend its complaint has long been considered to be within the sound discretion of the trial court, and
that the court’s decision is not normally reversed unless that discretion has been abused. Harris v.
St. Mary’s Medical Center, 726 S.W.2d 902, 904 (Tenn. 1987); Newcomb v. Kohler Company, 222
S.W.3d 368, 384-5 (Tenn. Ct. App. 2006); Hardcastle v. Harris, 170 S.W.3d 67 (Tenn. Ct. App.
2004). Our courts have declared, however, that the effect of Rule 15.01's directive that leave to
amend shall be freely given “substantially lessens the exercise of pretrial discretion on the part of
a trial judge.” Branch v. Warren, 527 S.W.2d 89, 91-92 (Tenn. 1975); Hardcastle v. Harris, 170
S.W.3d at 80-81; Blocker v. Dearborn & Ewing, 851 S.W.2d 825, 826 (Tenn. Ct. App. 1992).

Our Supreme Court has set out several factors for the courts to apply, singly or in
combination, in determining whether to grant a motion to amend. These include, “[u]ndue delay in
filing; lack of notice to the opposing party; bad faith by the moving party; repeated failure to cure
deficiencies by previous amendments; undue prejudice to the opposing party; and the futility of the
amendment.” Gardiner v. Word, 731 S.W.2d 889, 891-92 (Tenn. 1987). See also Merriman v.
Smith, 599 S.W.2d 548, 559 (Tenn. Ct. App. 1979). The most important of these factors is “the
proposed amendment’s potential prejudicial effect on the other party.” Newcomb v. Kohler, 222
S.W.3d 368, 384 (Tenn. Ct. App. 2006) (citing Hardcastle v. Harris, 170 S.W.3d at 81).

The trial court touched on several of the above factors in its memorandum of April 10, 2008.
The court found that there was undue delay in filing the motion to amend, even though the record
showed that motion was filed shortly after the reinstatement of Wynn Homes, Inc. It also recited the

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fact that Mr. Wynn allowed his corporation to go into dissolution but nonetheless signed a contract
in the name of the dissolved corporation. The court concluded that “[t]he prejudicial effect, if any,
should fall against the plaintiff, Gary Wynn.” It did not suggest that the delay in filing had produced
any prejudicial effect, nor did it explain in what way La Maruja would be prejudiced if the court
allowed Wynn’s complaint to be amended.

This court asked La Maruja during oral argument what prejudice it would suffer if the motion
to amend was granted. The defendant acknowledged that it did not make much difference either way
as regards Wynn’s claim for specific performance, since even if we upheld the court’s denial of the
motion to amend, Wynn could voluntarily dismiss his complaint and simply file a new complaint
in the name of Wynn Homes, Inc. Such a complaint would presumably be timely under the six year
statute of limitations for contracts “not otherwise provided for.” See Tenn. Code Ann. § 28-3-109.
La Maruja argued, however, that if the amendment were granted it would be compelled to defend
against Wynn’s claim for fraudulent misrepresentation, while if it were denied, a newly-filed fraud
claim might prove to be time-barred.2

This court has described the kinds of circumstances when a trial court would be justified in
denying a motion to amend a pleading because of prejudice to the opposing party. These include
situations when the amendment will cause additional expense and the burden of a more complicated
or lengthy trial, when it will require the opposing party to engage in additional pre-trial preparation,
when it will unduly increase the discovery required, or when it will unduly delay the trial. Hardcastle
v. Harris, 170 S.W.3d at 81. None of these apply to the case before us. Simply being forced to
defend a pending claim is not normally considered the sort of prejudice that would justify declining
a plaintiff’s motion to amend a complaint.

IV. RELATION BACK OF REINSTATEMENT

La Maruja argues on appeal that since Wynn Homes, Inc., was a dissolved corporation at the
time the contract of sale was executed, it lacked the capacity to enter into a binding contract. The
defendant relies on Tenn. Code Ann. § 48-24-105(a) which describes the effect of dissolution on the
rights of a corporation as follows: “A dissolved corporation continues its corporate existence but may
not carry on any business except that appropriate to wind up and liquidate its business and affairs.”3
La Maruja thus contends that the contract was void ab initio, and suggests therefore that Wynn’s
motion to amend was rightly denied because the proposed amendment would be futile.

The defendant would be correct if Mr. Wynn had not taken the necessary steps to reinstate
the corporate status of Wynn Homes, Inc. We note that Tenn. Code Ann. § 48-24-104(e) and Tenn.

2
It is at least arguable that the three year statute of limitations found in Tenn. Code Ann. § 28-3-105 would
apply to Mr. W ynn’s fraud claim.

3
Tenn. Code Ann. § 48-24-105 actually applies to corporations that have been voluntarily dissolved. Tenn.
Code Ann. § 48-24-202 contains the same limitation on the action of a dissolved corporation, but applies to corporations
that have been administratively dissolved. It appears that W ynn Homes, Inc. was administratively dissolved.

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Code Ann. § 48-24-203(c) govern the rights of corporations that have been dissolved and
subsequently reinstated. Both state, “[w]hen the revocation of dissolution is effective, it relates back
to and takes effect as of the effective date of the dissolution and the corporation resumes carrying
on its business as if dissolution had never occurred.”

Similarly, Tenn. R. Civ. P. 15.03 states that an amended pleading normally relates back to
the date of the filing of the original pleading. See also, Doyle v. Frost, 49 S.W.3d 853, 856 (Tenn.
2001). Thus, allowing Wynn to amend his complaint would not be a futile exercise, for it would
restore the parties to the positions they would have rightly occupied at the commencement of this
action, had Wynn Homes, Inc., not been a dissolved corporation at the time.

As our courts have pointed out, “Tennessee law and policy have always favored permitting
litigants to amend their pleadings to enable disputes to be resolved on their merits rather than on
legal technicalities.” Hardcastle v. Harris, 170 S.W.3d at 80 (citing Karash v. Pigott, 530 S.W.2d
775, 777 (Tenn. 1975)). This case presents a real question as to the respective rights of the parties
in a piece of real property after the execution of a contract of sale for that property. We therefore
believe that under the circumstances, the trial court should have granted Wynn’s motion to amend
in light of the Tennessee Rule of Civil Procedure 15.01's directive that amendments will be freely
granted when justice so requires.

IV.

The order of the trial court is reversed and Gary Wynn’s Motion to Amend his Complaint
is granted. We remand this case to the Chancery Court of Sumner County for further proceedings.
Tax the costs on appeal to the appellee, La Maruja Realty Corporation.

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PATRICIA J. COTTRELL, P.J., M.S.

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