IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
GERALD LARGEN v. CRACKER BARREL OLD COUNTRY STORE,
INC.
Direct Appeal from the Circuit Court for Roane County
No. 11476 Hon. Russell Simmons, Jr., Judge
No. E1999-01006-COA-R3-CV - Decided April 13, 2000
This is a suit by Seller against Buyer for the Buyer’s termination of the parties’
contract for the sale of real property. Appellee Cracker Barrel Old Country Store, Inc. (“Buyer”)
entered into a contract to purchase real property from Appellant Gerald Largen (“Seller”) but
terminated that contract three weeks later, after Buyer decided that the premises were unsatisfactory
for its intended use. Seller filed a “Complaint for Declaratory Judgment,” later amended to allege
that Buyer had breached the contract, for which Seller sought damages of $500,000. Buyer answered
that the termination of the contract and return of its earnest money deposit were done in accordance
with the terms of the contract which provided certain conditions precedent to the sale. The Trial
Court found that Buyer had breached its covenant of good faith and fair dealing and awarded Seller
$5,000 as liquidated damages as provided for in the contract. Because we find the evidence
preponderates against the Trial Court’s finding that Buyer breached the contract, we reverse the
judgment of the Trial Court and dismiss Seller’s Complaint.
Tenn. R. App. P. 3; Judgment of the Circuit Court is Reversed and the case is Remanded.
SWINEY , J., delivered the opinion of the court, in which GODDARD , P.J, and SUSANO, J., joined.
Gerald Largen, Kingston, Tennessee, Pro Se
John D. Agee, Kingston, Tennessee, for the Appellee, Cracker Barrel Old Country Store, Inc.
OPINION
Background
A realtor contacted Seller in July or August 1996 and asked him whether he would
be willing to sell a 2.5 acre tract of land at the intersection of U.S. Highway 27 and Interstate
Highway 40 in Roane County. The realtor then arranged a meeting between Seller and Buyer’s
representative, Tom Reddy, on October 9, 1996. Buyer brought a sales contract to the meeting.
Seller, an attorney licensed in Tennessee for over forty years, reviewed the contract and advised
Buyer that he could not sign it unless some changes were made. Buyer agreed to make those
changes. On October 24, 1996, the parties met again and Buyer delivered to Seller the proposed
final draft of the contract. Seller studied the contract and signed it in Buyer’s presence. Reddy sent
the signed contract to company vice-president, Donald Cravitts, who signed it on behalf of Buyer
on October 30, 1996. We reproduce two paragraphs of the contract which are at issue in this appeal:
4. Earnest Money. Purchaser shall deposit with Chicago Title
Insurance Company, as escrow agent, Five thousand and no/100
Dollars ($5,000.00), as earnest money, within ten (10) days after the
last execution of this Agreement, to be held in escrow agent’s interest
bearing trust account and to be credited against the purchase price at
closing (said earnest money, and any and all interest accrued thereon,
hereinafter collectively called the “Deposit”). Purchaser shall deposit
the balance of the purchase price in escrow with said escrow agent
within ten (10 days) after the title has been approved by Purchaser, all
contingencies of this Agreement have been met, and a deed as
aforesaid has been delivered to the escrow agent. If Purchaser
defaults hereunder and fails to cure said default within thirty (30)
days after receipt of written notice therefor from Seller, then, upon
demand of Seller, said Deposit shall be forfeited as liquidated
damages and this Agreement shall become null and void. It is
specifically agreed that Seller’s sole remedy in the event of a default
by Purchaser under this Agreement shall be limited solely to retention
of the Deposit as liquidated damages, and Seller waives any and all
other damages and causes of action which may have arisen pursuant
to law, including without limitation, any right to specific
performance, or under any other terms of this Agreement. If this
Agreement is terminated for any reason other than Purchaser’s
default, the Deposit, together with any other sums and/or documents
deposited with the escrow agent by Purchaser, shall be returned to the
Purchaser.
* * *
6. Conditions Precedent: Seller hereby acknowledges that
Purchaser would be unable to use the Premises for purposes other
than a Cracker Barrel Old Country Store® constructed according to
the Purchaser’s plans and specifications, together with curb cuts and
off-street parking and signage acceptable to Purchaser, including
without limitation, Purchaser’s identification pole sign, building sign
and directional/entrance-exit signs (collectively, “Purchaser’s
Intended Use”). Therefore, this purchase and sale is subject to the
satisfaction of the following conditions and covenants:
* * *
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D. Purchaser obtaining a . . . certified survey satisfactory to
Purchaser, in its sole opinion . . . not disclosing any condition
rendering the Premises unusable, in Purchaser’s sole
opinion, for Purchaser’s Intended Use.
E. Purchaser obtaining, at Purchaser’s expense, boring,
percolation and other soil tests (“Soil Tests”), as well as
e n vironmental, structur a l a n d p h y s i c al
inspections/assessments (“Physical Inspections”), and
feasibility, demographic, traffic pattern, labor pool and other
site assessment studies (“Site Studies”) showing that the
Premises is satisfactory, in Purchaser’s sole judgment, for
Purchaser’s Intended Use.
* * *
F. Purchaser obtaining ingress and egress to public
thoroughfares adequate, in Purchaser’s sole opinion, for
Purchaser’s Intended Use under terms and conditions
acceptable to Purchaser, in its sole discretion.
(Emphasis added.)
In the event the conditions of this Agreement have not been satisfied
or complied with within one hundred eighty (180) days after the
Effective Date (ninety (90) days with respect to senior management
approval), or in the event that the Soil Tests, Physical Inspections,
Site Studies, surveys, Governmental Approvals, permits, approval of
Purchaser’s senior management and/or other approvals have not been
obtained within said one hundred eighty (180) day period (ninety (90)
days for senior management approval), or do not meet with
Purchaser’s approval or disclose matters which would make the
Premises unsuitable for the purposes stated herein, anything
contained herein to the contrary notwithstanding, Purchaser may, at
its option and at any time after the aforementioned one hundred
eighty (180) day period (ninety (90) day period for senior
management approval), terminate this Agreement, and the money and
documents deposited in escrow shall be returned to the party
depositing same.
On November 20, 1996, three weeks after the contract was signed, Buyer sent a letter
to Seller which we reproduce:
Dear Mr. Largen:
We regret to inform you that in the course of conducting the various
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conditions precedent set forth in Article 6E of the Real Estate Sales
Contract dated October 30, 1996, Cracker Barrel has determined that
the Premises is unsatisfactory for Purchaser’s Intended Use (as
defined in the Contract). Therefore, this letter shall constitute official
notice to you under Article 6 of the Contract that Cracker Barrel has
elected to terminate the Contract and obtain the return of its earnest
money deposit.
By carbon copy hereof to Chicago Title Insurance Company, we are
hereby requesting the return of the earnest money Deposit for the
transaction.
We regret that this action is necessary and hope that future
transactions will be more fruitful.
Sincerely,
S. James Torcivia
Director, Real Estate
Seller testified at trial that he went over the proposed contract with Tom Reddy,
Buyer’s representative, and “had considerable discussion” with Reddy about the contract. They
discussed the existence of an easement for ingress and egress on adjacent Shoney’s property. Seller
told Buyer that he was concerned about provisions in the contract requiring Seller to bear expense
of studies, survey and other things that Seller was unwilling to bear. Buyer agreed to strike the
offending portions of the contract. A second draft was delivered to Seller on October 24, 1996,
Seller studied it and signed it. Buyer signed the contract on October 30, 1996. That same day, Seller
signed an authorization for Buyer to go on the land for purposes of “surveying and so on.”
Seller testified that he had no further contact with Buyer until November 24, 1996,
when he received a letter from Buyer saying that it had terminated the contract under the provisions
of section six of the contract. Seller then wrote Buyer on November 26 and December 17, 1996,
asking for “some explanation” and “further information.” Counsel for Buyer responded that the
termination had been accomplished in accordance with the terms of the contract.
Seller testified that he then wrote to Chicago Title and Insurance Company on January
15, 1997, asking if they were still holding the $5,000 deposit in escrow. The title company replied
that the deposit had been refunded to Buyer. Seller then filed suit for declaratory judgment, later
amended to allege breach of contract “as a result of the production of documents from the
defendant.” Seller testified that he had calculated his damages as $490,200.1
1
The original contract provided $278,000 purchase price , with $27,800 of that being for
real estate broker’s commission and $250,000 being Seller’s share. The contract was for two and
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On cross-examination, Seller admitted that an adjacent restaurant, Shoney’s, had
placed a sign in the easement appurtenant to his property. He also admitted that he learned during
pre-trial discovery that Buyer had performed some investigations to determine the fitness of the
property for its intended purpose before terminating the contract. Those investigations included the
hiring of an outside engineering firm to estimate the cost of the project and to prepare a preliminary
plot plan showing the contemplated building, parking and signage.
Seller admitted that he also learned during discovery that Buyer performed its own
internal site development cost estimates prior to terminating the contract and that the in-house
estimator had opined that site development costs would be $600,000 higher than the outside
engineering firm had estimated. The difference in the two estimates was due to the in-house
estimator adding $600,000 for the cost of removing rock from the property. The presence or absence
of rock on the property is the major factual dispute between the parties. Seller insisted that Buyer’s
cost estimate was wrong because there was no rock on his property, and since there was no rock,
Buyer was incorrect in claiming that there would be $600,000 of additional costs for removing rock.
Seller contends that without that $600,000 addition to the cost estimate, the project would have been
economically feasible and the contract would not have been terminated. Seller complains that Buyer
failed to do core drilling to assess the rock situation, and that if Buyer had done the proper
investigation, the contract would not have been terminated. (“Why, on five different sites on that
same ridge, that have been severely excavated both by TVA and the Department of Transportation,
no one has ever found rock there.”)
Mr. Tom Reddy, Real Estate Manager for Cracker Barrel Old Country Store, testified
that when he presented the contract to Seller, he and Seller went over the contract for an hour or two.
After the contract was signed, Reddy undertook the company’s customary steps in evaluating the
fitness of the proposed site. He sent documents Seller had given him about the Shoney’s easement
to Buyer’s counsel in New Orleans. The easement situation caused him concern about ingress and
egress to the property. Reddy also requested a survey and engineering studies and ordered
demographic reports to estimate the overall potential for sales at that location. After he obtained this
information and sent it to headquarters, Cracker Barrel terminated the contract because the
information obtained showed that it would not be economically feasible to develop the site. The
decision to terminate the contract was made during a conference call between Reddy and senior staff
in the home office, during which they discussed the site survey and all the other engineering data.
one-half acres at $100,000 per acre. It was Seller’s opinion as owner of the land that, at the time of
trial, the best price he could receive on a sale of the property was $20,000 per acre; therefore he had
$200,200 in direct damages as a result of Buyer’s breach of the contract. He also testified that he
owns another 150 acres around the property at issue, all of which would have increased in value if
a restaurant were built adjoining it. At least 25 of those acres would have increased in value by at
least $10,000 per acre by the building of a restaurant. Therefore, Seller claimed an additional
$250,000 in consequential damages. Interest at ten percent for two years would add $40,000, for a
total of $490,200 damages. We express no opinion regarding the validity of seller’s approach to the
calculation of damages.
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Reddy opined the decision was based on “the topography and the cut” i.e., the cost of cutting into
the hillside, considering the cost of removal of any rock found there. He does not think anyone from
Cracker Barrel ever discussed the rock problem with Seller before terminating the contract.
Mr. Mike Freeman testified that he is an Engineer Surveyor and owns Freeman
Engineering Surveying. On October 18 and 24, 1996, he received faxed requests from Cracker
Barrel Old Country Store to conduct a preliminary survey of two and one-half acres shown on a
faxed tax map of Roane County. He performed a boundary topographical survey and provided Buyer
with the results. Before doing the survey, he searched the Roane County Courthouse, the Property
Assessor’s Office and the Register of Deeds Office. He knew about the unrecorded judgment
establishing Seller’s easement over Shoney’s property because he had also surveyed the adjacent
property where Shoney’s is located, and he had access to that survey. However, in retrospect, he
now realizes that he made an error in his survey which, when corrected, would have moved the
southwestern boundary line 132 feet closer to the hillside. That would mean there actually is less
flat land and more hillside in Seller’s property than he told Buyers. His fee for service to Buyer was
$2,500, which Buyer paid.
Mr. Ted Tillman, Director of Construction for Cracker Barrel, testified that he has
“personally built thirty [stores] for the company [and] supervised over a hundred.” At the time that
Buyer was involved with contract negotiations with this Seller, Mr. Tillman was Project Manager.
His duties consisted of:
What we would call due diligence, meaning, I would go visit the site,
make an analysis, an estimate of what I perceived it would cost to
develop the site. I would do what we call a D.C.E., Development
Cost Estimate, and present that to Real Estate.
Mr. Tillman testified that he met with the real estate agent, discussed the site with her,
received a plat to add to his folder, and visited the site. He assessed the geological conditions of the
proposed site to estimate the extent of grading, excavation and fill that would be required. He saw
that the adjacent property, Shoney’s, had some rock outcropping coming out of the side of the
mountain and “there was lots of excavation, which you would call ‘cut’ into the side of the hill. . .
so I concluded that most likely we would have some rock excavation on the property.” He prepared
a development cost worksheet, a one-page estimate of preliminary figures, which originally did not
include excavation of rock. That worksheet estimated that it would cost Buyer 2.651 million dollars
to develop Seller’s property. He then estimated that the expense of excavating rock would raise the
cost by $577,000. That total, 3.2 million dollars, exceeds the maximum Cracker Barrel typically
spends on development of a site. Mr. Tillman also testified that Cracker Barrel ultimately bought
nearby property and built the restaurant, and that site proved to have rock which required removal.
On cross-examination, Mr. Tillman testified that his experience at estimating
excavation costs in East Tennessee comes from one Cracker Barrel Restaurant which was built in
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Johnson City and the restaurant in Harriman which was built on other property after this contract was
terminated. The Johnson City experience “made me think that when there is a hill in East Tennessee,
there’s a probability that I’m going to encounter some rock.” His opinion that Seller’s site would
involve rock excavation was also based on:
visual inspection of the surrounding geology in Harriman, Tennessee,
and reading countless soil boring reports, geotechnical soil boring
reports of other projects in the, we call it the Appalachian Range of
Eastern Tennessee, West Virginia, Pennsylvania, Northern Georgia,
and North Carolina.
After Seller’s site was rejected, Buyer purchased a nearby site and built its restaurant, with a total
cost for that project of approximately $2.7 million.
Mr. Jim Torciva, Director of Real Estate for Cracker Barrel, testified that the decision
to terminate Seller’s contract was made in a conference call which involved himself, “Bill Sopenski,
my counterpart in construction, Ted Tillman’s supervisor at that time, Don Cravitts, and I think we
had Tom Reddy on conference call . . . .” He said that they decided to terminate the contract under
Article 6E of the contract because it was no longer feasible to proceed. The decision was made
based on their feasibility studies, specifically a cost analysis which showed the cost to be estimated
at 2.6 million dollars plus:
the good possibility of an additional five or six hundred thousand
dollars in rock removal, which could put the project at well over three
million dollars. That would have made it not viable to continue.
That was the major part of the decision not to move forward, coupled
with the easement problem that was discussed earlier, or the potential
for an easement problem, the unrecorded judgment. We knew that
the Shoney’s sign was in the easement. We also knew that their
parking was in the easement.
Mr. Torciva also testified that another factor in the decision was that the demographic study done
by Buyer showed that the project was not economically feasible in light of the projected sales. When
asked about the 132 foot error in surveying the property, he opined that if that had been known, it
would have made the project even less economically feasible. Even though the standard contract
permits Cracker Barrel 90 to 180 days to notify sellers that a project will be terminated, his practice
is to notify a prospective seller immediately upon the company’s making a decision to terminate, so
that sellers will not have their property tied up longer than necessary. For that reason, they notified
Seller three weeks after entering into this contract that the contract was terminated.
On cross-examination, Torciva testified that a Cracker Barrel Restaurant was later
built on nearby property in Harriman at a cost of $2.6 million. However, that site has encountered
an erosion problem from the top of a hill behind the restaurant. The company is now regrading the
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hill and shoring it up. Repairing that erosion problem will probably result in the overall cost of that
project being near $3 million.
The Trial Court found, as pertinent to this appeal:
The defendant’s decision to terminate was based on two (2) opinions:
(1) the potential site development costs were too high, and (2) there
were potential easement problems.
In determining the site development costs the defendant sent
information to an engineering firm called Design and Engineering.
The engineering firm and the defendants employees determined that
the site development cost would be approximately $2.65 million
(Exhibit #20). The only reason the defendant found the site
preparation to be excessive is based on the recommendation of Ted
Tillman.
Ted Tillman has been an employee of the defendant for five (5) years
and serves presently as project manager and has experience in
building and project management. He indicated he only had two (2)
undergraduate courses in geology which he did not use. He did not
indicate what his duties as project manager are or what expertise he
has gained in this occupation.
The Trial Court then summarized the evidence that Design and Engineering had estimated the
clearing and grading cost at $377,000 to $555,200. Those estimates, which quoted a per cubic yard
cost of $9.00, assumed rock excavation. Ted Tillman’s estimate, however, quoted $50 to $75 per
cubic yard because of the rock. The Trial Court then stated:
The Court finds from the evidence that Ted Tillman is not an expert
in geology or in the estimating of cost of excavation. There is no
objective basis to indicate there was rock nor any estimate of the
amount of rock in the proposed site, other than the testimony of Ted
Tillman. The Court finds the testimony of Ted Tillman concerning
the cost of excavation is not credible versus a figure of Nine Dollars
($9.00) per cubic yard by an engineering firm who the defendant
trusted to do its site evaluation.
The Court finds that in good faith the defendant should have done the
geological testing it was allowed to do under the contract and
determine the cost of excavation in the area before making its
decision to terminate the contract based on the cost feasibility due to
excavation of rock.
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On the issue of the easement, the Trial Court found:
The defendant made no efforts to call the plaintiff or other land
owners to determine if there was an actual problem. The defendant
did not show documentation of the law firm’s opinion and only
testified of a concern or a potential of an easement problem. The
Court finds that good faith required that the defendant make a
reasonable effort to establish there was an actual problem before this
could be used as a reason for termination.
Every contract imposes upon each party a duty of
good faith and fair dealing in its performance and
enforcement. Restatement, 2d contracts, §205, 17
Am.Jur.2d Contract § 256.
Generally, in construing contracts, the courts not only
look to the language of the instrument, but must
ascertain, if possible, the intention of the parties, and
the construction which is reasonable and fair will
prevail. Real Estate Management v. Giles, supra.
Covington v. Robinson, 723 S.W.2d 643 (Tenn.App.
1986).
The Court finds from a reading of the contract, the testimony of the
witnesses and the exhibits introduced that the defendant breached its
covenant of good faith and fair dealing with the plaintiff in
terminating the sales contract without making a reasonable effort to
ascertain the amount of rock on the site and the actual cost of removal
of the rock and without determining that there was an actual problem
with the easement instead of a potential problem.
The Court further finds that paragraph 4 of the contract provides for
liquidated damages in the amount of Five Thousand Dollars
($5,000.00) if Purchaser breached the contract. The Court finds this
amount to be the damages to which plaintiff is entitled under the
contract.
Discussion
Seller appeals and raises the following issue:
Whether, under the rules concerning the enforceability of liquidated
damages provisions in contracts, and under facts of this case, the
plaintiff’s recovery of money damages should be limited to the
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amount stated in the contract as liquidated damages, i.e. Five
Thousand Dollars ($5,000.).
In response, Buyer raises the following issue:
Did the Trial Court err in finding that the defendant breached its
covenant of good faith and fair dealing with the plaintiff?
Our review is de novo upon the record of the Trial Court, T. R. A. P. Rule 13(d). The
Trial Court’s findings of fact are conclusive on appeal unless the evidence in the record
preponderates against those findings. State v. Burns, 6 S.W.3d 453 (Tenn. 1999). The interpretation
of a written agreement is a matter of law and not of fact. Therefore, as to matters of law, our scope
of review is de novo on the record with no presumption of correctness of the Trial Court’s
conclusions of law. Park Place Center Enterprises v. Park Place Mall Associates, 836 S.W. 2d 113,
116 (Tenn. Ct. App. 1992).
Seller argues that he should not be limited to $5,000 as liquidated damages as
specified in the contract because (a) the amount of actual damages is easily determined, (b) the
liquidated damages clause acts as a penalty against the Seller, (c) Buyer withdrew the liquidated
damages funds from escrow and is therefore estopped from relying on the liquidated damages clause,
and (d) Buyer breached its implied covenant of good faith and fair dealing and therefore is liable for
actual damages.
Buyer argues that the Trial Court erred in finding that it breached the covenant of
good faith and fair dealing because that finding was based on obligations imputed to Buyer by the
Trial Court which went beyond the four corners of the contract. Buyer argues this deviation was
unwarranted because the Trial Court was obligated to interpret and enforce the contract as written,
even though it contains harsh terms.
As stated, the Trial Court held that Buyer had breached the covenant of good faith and
fair dealing and awarded Seller the liquidated damages provided for in the contract. In this appeal,
we do not reach Seller’s issue of whether he “should be limited to the amount stated in the contract
as liquidated damages” unless our de novo review convinces us that Buyer has breached the contract.
The cardinal rule of interpretation of contracts is to ascertain the
intention of the parties and to give effect to that intention consistent
with legal principles. In construing contracts, the words expressing
the parties intentions should be given their usual, natural, and
ordinary meaning.
Park Place Center Enterprises v. Park Place Mall Associates, 836 S.W. 2d 113, 116 (Tenn. App.
1992).
Seller cites Covington v. Robinson, 723 S.W.2d 643 (Tenn. Ct. App. 1986) for the
rule that “[e]very contract imposes upon each party a duty of good faith and fair dealing in its
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performance and enforcement. RESTATEMENT, 2D CONTRACT S § 205. 17 AM .JUR. 2D CONTRACTS,
§ 256.” Our Supreme Court discussed the nature of the duty of good faith in Wallace v. National
Bank of Commerce, 938 S.W.2d 684 (Tenn. 1997):
In Tennessee, the common law imposes a duty of good faith in the
performance of contracts. This rule has been considered in several
recent decisions of the Court of Appeals. The law regarding the good
faith performance of contracts was well stated by the Court of
Appeals in TSC Industries, Inc. v. Tomlin, 743 S.W.2d 169, 173
(Tenn. App. 1987):
It is true that there is implied in every contract a duty
of good faith and fair dealing in its performance and
enforcement, and a person is presumed to know the
law. See Restatement (2d) Contracts, § 205 (1979).
What this duty consists of, however, depends upon the
individual contract in each case. In construing
contracts, courts look to the language of the
instrument and to the intention of the parties, and
impose a construction which is fair and reasonable.
In Covington v. Robinson, 723 S.W.2d 643, 645-46 (Tenn. App.
1986), which was relied upon by the Court of Appeals in TSC
Industries, the Court of Appeals held that in determining whether the
parties acted in good faith in the performance of a contract, the court
must judge the performance against the intent of the parties as
determined by a reasonable and fair construction of the language of
the instrument. In a later decision, the Court of Appeals held that
good faith in performance is measured by the terms of the contract.
“They [the parties] may by agreement, however, determine the
standards by which the performance of obligations are to be
measured.” Bank of Crockett v. Cullipher, 752 S.W.2d 84, 91 (Tenn.
App. 1988).
***
In this case . . . the language of the agreements clearly states the terms
and reflects the intent of the parties . . . . Performance of a contract
according to its terms cannot be characterized as bad faith.
[Emphasis added.]
***
. . . it should be noted that the common law duty of good faith in the
performance of a contract does not apply to the formation of a
contract. See Restatement (Second) of Contracts, § 205 cmt. c
(1979). Consequently, the common law duty of good faith does not
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extend beyond the agreed upon terms of the contract and the
reasonable contractual expectations of the parties.
Wallace v. National Bank of Commerce, 938 S.W.2d at 686-687, (Tenn. 1997). Applying these
standards, for Seller to prove that Buyer breached the contract, Seller must show that Buyer’s action
in terminating the contract was not in accordance with the contract’s terms. This is particularly true
in this case where Buyer is an experienced commercial entity and Seller is an attorney who has been
licensed to practice law in this state for over forty years.
Looking at the terms of the contract, we find that Buyer had sole discretion to
determine whether its survey of the property disclosed any condition rendering the Premises
unusable:
6. Conditions Precedent.
D. Purchaser obtaining . . . a certified survey satisfactory to
Purchaser, in its sole opinion . . . Not disclosing any condition
rendering the Premises unusable, in Purchaser’s sole opinion, for
Purchaser’s Intended Use.
The terms of the contract also gave Buyer the sole judgment as to whether the
assessment studies showed that the property was satisfactory for its intended use:
6. Conditions Precedent.
E. Purchaser obtaining, at Purchaser’s expense, boring, percolation
and other soil tests (“Soil Tests”) as well as environmental, structural
and physical inspections/assessments (“Physical Inspections”), and
feasibility, demographic, traffic pattern, labor pool and other site
assessment studies (“Site Studies”) showing that the Premises is
satisfactory, in Purchaser’s sole judgment, for Purchaser’s Intended
Use.
The terms of the contract also gave Buyer the sole discretion to determine whether,
in Buyer’s opinion, the ingress and egress to public thoroughfares was adequate:
6. Conditions Precedent.
F. Purchaser obtaining ingress and egress to public thoroughfares
adequate, in Purchaser’s sole opinion, for Purchaser’s Intended Use
under terms and conditions acceptable to Purchaser, in its sole
discretion.
Seller was questioned at trial about whether he read the terms of the contract:
Q: And you had an opportunity to review that, didn’t you?
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A: Mr. Agee, I had the opportunity to review everything. I
thought I was dealing with honorable people, a conclusion
which I have since had to adjust.
Q: Having reviewed that, you signed it and agreed to it, didn’t
you?
A: I did not review that, in particular. I had the opportunity to.
I did execute the contract by thinking I was dealing with
honorable folks.
MR. AGEE: That’s all, Your Honor.
The Trial Court found that the contract implied an obligation on the part of Buyer to
determine that the cost estimate of its employee, Ted Tillman, was not as credible as the competing
cost estimate of Design and Engineering Company. We find no such requirement in this contract.
The Buyer was authorized to determine whether the property was suitable for its intended purpose,
in its sole judgment. The Trial Court had no authority to add that Buyer’s “sole judgment” was valid
only if the information used in making that judgment was gathered by an estimator approved by
Seller.
The Trial Court found that “in good faith, the defendant should have done the
geological testing it was allowed to do under the contract and determine the cost of excavation in the
area before making its decision to terminate the contract based on the cost feasibility due to
excavation of rock.” We find no such requirement in this contract. The contract provides that a
condition precedent is:
E. Purchaser obtaining, at Purchaser’s expense, boring,
percolation and other soil tests (“Soil Tests”), as well as
environmental, structural and physical
inspections/assessments (“Physical Inspections”), and
feasibility, demographic, traffic pattern, labor pool and other
site assessment studies (“Site Studies”) showing that the
Premises is satisfactory, in Purchaser’s sole judgment, for
Purchaser’s Intended Use.
The Contract does not require Buyer to perform specific geological testing before it
exercises its sole judgment to determine whether or not the premises are satisfactory for Buyer’s
intended use. It is undisputed in the record that Buyer did make an assessment of the geological
aspects of this property. It is likewise undisputed from the testimony another factor in Buyer’s
decision not to proceed with the purchase was that the demographic study done by Buyer showed
the project was not economically feasible in light of the projected sales. Buyer may have been
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wrong in its assessment and its exercise of its sole judgment, but whether Buyer’s decision was
accurate or inaccurate is immaterial to the requirements placed on Buyer by the contract.
The Trial Court found that “good faith required that the defendant make a reasonable
effort to establish there was an actual [easement] problem before this could be used as a reason for
termination.” We find that Buyer did act in good faith in determining that the easement was a
problem. The evidence shows that Seller was awarded the easement in an earlier lawsuit, but the
easement had never been recorded. Shoney’s had constructed a sign on the easement and was using
part of the easement as a parking lot. Buyer testified that in its experience, a competing restaurant
was not easy to deal with when negotiating issues such as easement rights. Once again, the contract
gives Buyer the “sole discretion” to decide whether ingress and egress is acceptable to Buyer. Buyer
exercised that discretion.
We find that Buyer, in terminating this contract, acted within its rights as provided
by the terms of the contract. Performance of a contract according to its terms cannot be
characterized as bad faith. Wallace v. National Bank of Commerce, 938 S.W.2d at 687, (Tenn.
1997). Accordingly, Seller is not entitled to damages for breach of the implied covenant of good
faith and fair dealing. The decision of the Trial Court is reversed.
Conclusion
For the reasons herein stated, the judgment of the Trial Court is reversed and this
cause is remanded to the Trial Court for such further proceedings as may be required, if any,
consistent with this Opinion and for collection of costs below. Costs of this appeal are assessed
against Gerald Largen.
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