IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
July 11, 2005 Session
RABIA KAFOZI, ET AL. v. WINDWARD COVE, LLC.
Appeal from the Chancery Court for Hamilton County
No. 02-0336 Howell N. Peoples, Chancellor
Filed August 26, 2005
No. E2004-01791-COA-R3-CV
Rabia Kafozi and Audry C. Kafozi (“Plaintiffs”) signed an installment sales contract to purchase real
property from Windward Cove, LLC (“Defendant”). Plaintiffs made some, but not all of the
payments as scheduled. Defendant declared a default and then sold the real property to another
party. Plaintiffs sued Defendant seeking, among other things, either specific performance or the
return of payments made by them. The case was tried and the Trial Court held, inter alia, that the
installment sales contract did not set a due date and, therefore, Plaintiffs never were in default.
Defendant appeals claiming the Trial Court erred in interpreting the installment sales contract. We
reverse, and dismiss Plaintiffs’ claims.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed
and Plaintiffs’ Claims Dismissed; Case Remanded
D. MICHAEL SWINEY , J., delivered the opinion of the court, in which HERSCHEL P. FRANKS, P.J., and
CHARLES D. SUSANO , JR., J., joined.
John R. Anderson and Robert S. Grot, Chattanooga, Tennessee, for the Appellant, Windward Cove,
LLC.
John E. Eberly, Chattanooga, Tennessee, for the Appellees, Rabia Kafozi and Audry C. Kafozi.
OPINION
Background
Plaintiffs and Defendant signed an Installment Sales Contract (“the Contract”) in
January of 2000. Under the Contract, Plaintiffs were to purchase Lot 37 in the Windward Pointe
Subdivision located in Hamilton County, Tennessee (“Lot 37") from Defendant. In pertinent part,
the Contract provides:
2. Purchase Price. [Plaintiffs] agree[] to pay therefor the sum of One Hundred
Thousand Dollars ($100,000.00) to be payable as follows:
(a) Twenty-five Thousand Dollars ($25,000) on the signing of this agreement,
which is non-refundable in any event, the receipt of which is hereby acknowledged;
and
(b) Two Thousand Dollars ($2,000.00) on March 10, 2000, and on the tenth
(10th) day in each and every month thereafter for twelve (12) months until February
10, 2001, when the balance of the purchase price shall become due and payable,
regardless of loss, destruction or damage to any of the improvements thereon, if any;
provided, however, [Plaintiffs] can extend for an additional six (6) months upon
written notice to [Defendant]. For every month beyond the eighteen (18) months
above-stated, [Plaintiffs] will pay a penalty of five percent (5%) figured on an annual
basis of the unpaid balance till paid.
***
4. Default by [Plaintiffs]. In the event that the [Plaintiffs] shall make default in any
way of the covenants herein contained, or shall fail to make the payments aforesaid
at the times specified, the times of payment being declared to be the essence of this
agreement, if [Plaintiffs] default[] and such defaults are not cured within ten (10)
days, then the [Defendant] may declare this agreement null and void. Upon default,
[Plaintiffs] forfeit[] all payments and any and all rights to the Property.
***
7. Construction. No later than twelve (12) months from the final payment date,
[Plaintiffs] agree[] to enter into a construction agreement with CDM & Associates,
Inc., or its designee, for the construction of a residence on the Property, upon
reasonable terms and conditions, including, but not limited to providing that
construction must commence within twelve (12) months of the date this contract is
closed and title passes to [Plaintiffs]. Failure to do so by [Plaintiffs] will be a breach
of this Agreement.
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Plaintiffs made the $25,000 initial payment and the first twelve months’ worth of
payments, although not exactly as scheduled. Plaintiffs availed themselves of the additional six
months extension to pay the balance of the purchase price as provided by the Contract. Defendant
then granted Plaintiffs an additional six month extension to pay the balance of the purchase price.
Plaintiffs still did not pay the balance of the purchase price at the end of the second six month
extension. In February of 2002, Defendant sent Plaintiffs a certified letter stating that “this letter
constitutes notice of payment default and a demand for payment in the amount of $46,455.85. If
payment is not received within 10 days as provided in the Installment Sales Agreement, [Defendant]
will exercise its rights to terminate the Agreement.” Plaintiff Audry Kafozi signed for receipt of this
letter on February 15, 2002.
In March of 2002, Plaintiffs sued Defendant requesting the Trial Court to, among
other things, issue an order either to require Defendant to convey to Plaintiffs Lot 37 upon receipt
of the balance of the purchase price, or to require Defendant to return to Plaintiffs the money paid
by them under the contract with interest. In April of 2003, Plaintiffs moved the Trial Court for
permission to add Pamela M. Mabee as a party defendant claiming that Ms. Mabee was related to
Danny Mabee who was, or had been, an officer of Defendant and that the property was sold to Ms.
Mabee in a “‘sweetheart’ deal to keep Plaintiffs from acquiring the premises.” The Trial Court
entered an order in June of 2003 allowing Plaintiffs to amend their complaint to add Pamela M.
Mabee as a party defendant.
The case was tried in June of 2004. At trial, Richard J. Ebersole, chief manager and
owner of two-thirds of Defendant Windward Cove, LLC testified. Mr. Ebersole testified that Dale
Mabee, who at one time was a one-third owner of Defendant Windward Cove, LLC, signed the
Contract for Defendant. Mr. Ebersole testified that during the first twelve months of the Contract,
Plaintiffs made irregular payments, but they eventually did pay all of the $24,000 due for those
twelve months, and that he granted Plaintiffs two extensions to pay the balance.1
Mr. Ebersole testified he sold Lot 37 to Pamela Mabee on February 27, 2002, some
twelve days after Plaintiff Audry Kafozi had signed for receipt of the default letter, and therefore the
sale to Pamela Mabee was after the ten day default period had passed. He testified that he received
a phone call from a Mr. Bourne at Cornerstone Bank on February 28, the day after he sold the
property, and that he told Mr. Bourne that it was too late for the Plaintiffs to pay because the deadline
had passed. Mr. Ebersole testified: “I was unaware of any activity on a loan prior to the call I
received from Mr. Bourne . . . .” Mr. Ebersole further testified he does not believe he had any
communications from anyone regarding Lot 37 during the ten day default period and stated: “I just -
- I can’t recall whether anybody called me between - - I don’t have any recollection of having been
contacted between February the 13th and February the 25th or the 27th. The first communication
I can recall was the 28th of February.” However, Mr. Ebersole later admitted that he went to Mr.
Kafozi’s office on February 15 or 16 and spoke with Mr. Kafozi regarding the payment and that he
also later spoke with Mr. Kafozi on the phone.
1
W e note that the Contract gave Plaintiffs the right to the first six month extension.
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Mr. Ebersole testified that “Mike Bourne contacted me on the 28th because it was
the day after the sale.” Mr. Ebersole further stated that even when he spoke with Mr. Bourne of
Cornerstone Bank, “I was never given any evidence of any kind of any loan commitment from any
lender.” Mr. Ebersole stated:
I would benefit far more from the [Plaintiffs] maintaining that lot, purchasing that lot
and letting them build a house than I would from selling the lot to anybody else. It
was only because they could not come up with the money, and their banker gave me
no comfort, evidence, of any kind that he was in a position to make a commitment
when he called me after the deadline passed.
Plaintiff Rabia Kafozi testified that after he and his wife received the default letter,
Mr. Ebersole came to his office and told him their time was up. Mr. Kafozi testified that he replied:
No, my time is not up. Our agreement clearly says that if I don’t pay because of
religious reasons I couldn’t pay interest unless I have to. So I told him, the 18-month
period that we did not pay interest, I didn’t have to pay interest, but now I do, so I can
pay you the 5 percent, and I clearly told him not to write it in the Contract, not to
write interest, penalty, so I can pay the 5 percent penalty, and then I said, By the way,
I mean I needed to - - I had the payment of $10,000 in the office to pay to him. And
then he said, I’m sorry, I cannot take your payment, I need the whole sum right now.
Mr. Kafozi testified that at that time, Mr. Ebersole suggested Plaintiffs get a loan.
Mr. Kafozi testified that on that same day, after speaking with Mr. Ebersole, Mr. Kafozi called
Cornerstone Bank to apply for loan. Mr. Kafozi testified he delivered his financial statements to
Cornerstone Bank the next morning, which was three days after Plaintiffs received the default letter.
Mr. Kafozi testified that he then received a call from Cornerstone Bank requesting the address of the
property, and so he called Mr. Ebersole immediately and obtained this information. Mr. Kafozi
testified that Mr. Bourne from Cornerstone Bank then called him the next day asking for the lot
number. Mr. Kafozi stated that this phone call occurred four days after Plaintiffs received the default
letter. Mr. Kafozi testified that at this time, he gave Mr. Ebersole’s phone number to Mr. Bourne.
Mr. Kafozi testified that Mr. Bourne called him again later that same day, four days after Plaintiffs
received the default letter, and told him to call Mr. Ebersole. Mr. Kafozi testified that he and his
wife attempted to reach Mr. Ebersole and finally were able to do so later that evening, at which time
Mr. Ebersole told them that the property already was sold. Mr. Kafozi testified that everything
happened within the week, “we didn’t get the weekend.” Mr. Kafozi also testified that he was able
to get the loan and would have been able to complete the purchase. However, no one from
Cornerstone Bank testified regarding whether Plaintiffs ever were approved for a loan and Plaintiffs
admitted that they themselves did not have the money to pay the balance due.
The Trial Court entered an order on June 17, 2004, granting judgment in favor of
Plaintiffs and awarding Plaintiffs $54,500 plus interest at 10% per annum from February 27, 2002.
The Trial Court based its decision solely on its interpreting the Contract in a manner so that the
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Contract did not provide a due date for the payment by Plaintiffs of the balance of the purchase price.
The June 17 order also dismissed Plaintiffs’ claim against Pamela Mabee.
Discussion
Although not stated exactly as such, Defendant raises one issue on appeal: whether
the Trial Court erred in interpreting the Contract not to provide a due date for the payment by
Plaintiffs of the balance of the purchase price and, then holding as a result of that interpretation that
Plaintiffs did not breach the Contract by not paying the balance of the purchase price. Plaintiffs’ sole
argument in response is that the Trial Court correctly interpreted the Contract.
Our review is de novo upon the record, accompanied by a presumption of correctness
of the findings of fact of the trial court, unless the preponderance of the evidence is otherwise. Tenn.
R. App. P. 13(d); Bogan v. Bogan, 60 S.W.3d 721, 727 (Tenn. 2001). A trial court's conclusions of
law are subject to a de novo review with no presumption of correctness. S. Constructors, Inc. v.
Loudon County Bd. of Educ., 58 S.W.3d 706, 710 (Tenn. 2001).
In resolving a dispute concerning contract interpretation, our task is to ascertain the
intention of the parties based upon the usual, natural, and ordinary meaning of the contract language.
Planters Gin Co. v. Fed. Compress & Warehouse Co., Inc., 78 S.W.3d 885, 889-90 (Tenn.
2002)(citing Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn. 1999)). A determination of the
intention of the parties “is generally treated as a question of law because the words of the contract
are definite and undisputed, and in deciding the legal effect of the words, there is no genuine factual
issue left for a jury to decide.” Planters Gin Co., 78 S.W.3d at 890 (citing 5 Joseph M. Perillo,
Corbin on Contracts, § 24.30 (rev. ed. 1998); Doe v. HCA Health Servs. of Tenn., Inc., 46 S.W.3d
191, 196 (Tenn. 2001)). The central tenet of contract construction is that the intent of the contracting
parties at the time of executing the agreement should govern. Planters Gin Co., 78 S.W.3d at 890.
The parties’ intent is presumed to be that specifically expressed in the body of the contract. "In other
words, the object to be attained in construing a contract is to ascertain the meaning and intent of the
parties as expressed in the language used and to give effect to such intent if it does not conflict with
any rule of law, good morals, or public policy." Id. (quoting 17 Am. Jur. 2d, Contracts, § 245).
This Court's initial task in construing the Contract at issue is to determine whether
the language of the contract is ambiguous. Planters Gin Co., 78 S.W.3d at 890. If the language is
clear and unambiguous, the literal meaning of the language controls the outcome of the dispute. Id.
A contract is ambiguous only when its meaning is uncertain and may fairly be understood in more
than one way. Id. (emphasis added). If the contract is found to be ambiguous, we then apply
established rules of construction to determine the intent of the parties. Id. Only if ambiguity remains
after applying the pertinent rules of construction does the legal meaning of the contract become a
question of fact. Id.
In this case, the Contract provides that Plaintiffs would make a down payment, then
make monthly payments for a twelve month period:
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until February 10, 2001, when the balance of the purchase price shall become due and
payable, regardless of loss, destruction or damage to any of the improvements
thereon, if any; provided, however, [Plaintiffs] can extend for an additional six (6)
months upon written notice to [Defendant]. For every month beyond the eighteen
(18) months above-stated, [Plaintiffs] will pay a penalty of five percent (5%) figured
on an annual basis of the unpaid balance till paid.
Our initial task is to determine if this language in the Contract is ambiguous. Planters
Gin Co., 78 S.W.3d at 890. The Contract clearly provides that Plaintiffs were to make payments
“until February 10, 2001, when the balance of the purchase price shall become due and payable .
. . .” (emphasis added). The Contract further provides “[Plaintiffs] can extend for an additional six
(6) months upon written notice to [Defendant].”
The Contract clearly provided for a date, February 10, 2001, when the balance of the
purchase price was due. The Contract then provided for a six month extension of this due date
triggered by Plaintiffs providing written notice of the extension. Even given the second six month
extension granted by Defendant beyond what Plaintiffs were entitled to under the Contract, the
Contract still provided for a date certain when the balance of the purchase price would be due.
Taking the two six month extensions into consideration, the due date when the balance of the
purchase price was due and payable was February 10, 2002. The Contract is clear and unambiguous.
The provision providing for a 5% penalty for every month beyond the original 18
months does not eliminate the specific due date set in the Contract. Rather, this provision acts only
as a penalty clause to provide Defendant with an additional remedy if Plaintiffs did not pay by the
extended due date eighteen months out. The penalty clause simply provided for an additional
amount to be owed to Defendant if Plaintiffs did not pay by the extended due date. It clearly was
the intent of the parties to provide both a set due date and for an additional cost to Plaintiffs if
Plaintiffs did not pay the balance by the extended eighteen month due date set in the Contract. This
penalty provision in no way removed Defendant’s right to declare a default if Plaintiffs failed to pay
the balance of the purchase price on the due date. We find no ambiguity in these provisions of the
Contract.
The Contract also provides:
In the event that the [Plaintiffs] shall make default in any way of the covenants herein
contained, or shall fail to make the payments aforesaid at the times specified, the
times of payment being declared to be the essence of this agreement, if [Plaintiffs]
default[] and such defaults are not cured within ten (10) days, then the [Defendant]
may declare this agreement null and void.
Plaintiffs failed to make the final payment of the balance of the purchase price by February 10, 2002.
Defendant clearly had the right to declare a default, and Defendant chose to exercise this right and
sent Plaintiffs the default letter. Under the Contract, Plaintiffs had ten days to cure the default.
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Plaintiffs did not tender payment within those ten days and failed to cure the default within the ten
days as allowed under the Contract.
Mr. Kafozi testified that he and his wife were told before the ten day cure period had
elapsed that the property already had been sold to another party. Unfortunately however, the only
evidence in the record regarding when the property actually was sold is Mr. Ebersole’s testimony that
he sold Lot 37 to Ms. Mabee on February 27, twelve days after Plaintiff Audry Kafozi signed for the
default letter. In addition, no one from Cornerstone Bank testified regarding whether Plaintiffs ever
were approved for a loan, and Plaintiffs admitted they did not have the money themselves to pay the
balance due. Perhaps even more importantly, Plaintiffs did not raise this argument anywhere in their
brief in this appeal. Plaintiffs, instead, raised only one argument with that argument being that the
Trial Court’s interpretation of the Contract that there was no set due date for Plaintiffs to pay the
balance of the purchase price was correct.
We hold that the Trial Court erred in its interpretation of the Contract. The Contract
is clear and unambiguous and the intent of the parties clear. The Contract did provide a due date for
Plaintiffs’ payment of the balance of the purchase price. Plaintiffs did not pay the balance due by
the due date and, therefore, were in default. As Defendant properly exercised its right to declare a
default and the evidence shows that Plaintiffs did not cure the default within the ten day cure period,
we reverse the Trial Court’s June 17 order and dismiss Plaintiffs’ claims against Defendant. The
dismissal of the Plaintiffs’ claim against Pamela Mabee was not challenged on appeal, and it remains
in place.
We recognize that our decision results in a harsh outcome for Plaintiffs who had made
payments totaling approximately one-half of the purchase price of Lot 37, payments that under the
Contract they now forfeit. However, it is not the role of this Court “to make a different contract than
that executed by the parties.” Posner v. Posner, No. 02A01-9710-CV-00249, 1997 Tenn. App.
LEXIS 930, at *6 (Tenn. Ct. App. Dec. 30, 1997), no appl. perm. appeal filed. See also, e.g.,
Central Drug Store v. Adams, 201 S.W.2d 682 (Tenn. 1947). “In the absence of fraud or mistake,
a contract must be interpreted and enforced as written even though it contains terms which may be
thought to be harsh or unjust.” Tenpenny v. Tenpenny, No. 01-A-01-9406-CV-00296, 1995 Tenn.
App. LEXIS 105, at *15 (Tenn. Ct. App. Feb. 22, 1995), appl. perm. appeal denied July 3, 1995.
While this may not be the result this Court would prefer, it is the result mandated by the law and the
evidence.
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Conclusion
The judgment of the Trial Court is reversed, Plaintiffs’ claims against Defendant are
dismissed, and the case is remanded to the Trial Court for reassessment of and collection of the costs
below. The costs on appeal are assessed against the Appellees, Rabia Kafozi and Audry C. Kafozi.
___________________________________
D. MICHAEL SWINEY, JUDGE
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