IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
February 28, 2007 Session
DONALD F. BRADFORD, ET AL. v. JAMES W. SELL, ET AL.
Appeal from the Circuit Court for Washington County (Johnson City Law Court)
No. 25079 Jean A. Stanley, Judge
No. E2006-02272-COA-R3-CV - FILED APRIL 17, 2007
The issue presented in this lease dispute is whether the landlord or the tenant is responsible for
payment of the costs of ad valorem real estate taxes and premiums for fire and extended coverage
insurance. We hold that pursuant to the clear and unambiguous agreement of the parties, the tenant
is responsible for the costs at issue. We therefore reverse the judgment of the trial court.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Trial Court Reversed;
Case Remanded
SHARON G. LEE, J., delivered the opinion of the court, in which CHARLES D. SUSANO , JR., and D.
MICHAEL SWINEY , JJ., joined.
Edward T. Brading, Johnson City, Tennessee, for the Appellants, James W. Sell and Carolyn R. Sell.
Rick J. Bearfield, Johnson City, Tennessee, for the Appellees, Donald F. Bradford and Wendy L.
Bradford.
OPINION
I. Background
James W. Sell and Carolyn R. Sell own a parcel of commercial real property improved with
a large supermarket-type building on Knob Creek Road in Johnson City, Tennessee. The Sells
bought this property subject to a lease (the “overlease”) with Winn-Dixie Charlotte, Inc. (“Winn-
Dixie”). The term of the overlease was twenty years, ending on August 6, 2017. The overlease
required Winn-Dixie to pay rent in several variously defined forms: (1) “minimum guaranteed” rent
in the amount of $468,676 per year, due and payable in monthly installments of $39,056.33; (2)
“excess” rent in the amount, if any, by which one percent of Winn-Dixie’s gross annual sales
exceeded the minimum guaranteed annual rent; (3) “additional” rent in the amount of the fire and
extended coverage insurance policy purchased by the Sells to insure the property; and (4)
“additional” rent in the amount of ad valorem real estate taxes levied against the leased property.
Although Winn-Dixie abandoned the property around 2000, it continued to pay rent to the
Sells as required by the overlease. By agreement dated October 1, 2004, Winn-Dixie subleased the
property to Donald F. Bradford and Wendy L. Bradford. The sublease provided that the Bradfords
pay monthly “base rent” in the amount of $16,000 through December 31, 2005 and $32,000
thereafter, and also “additional rent” of gross annual sales percentage or “excess” rent as set forth
in the overlease. The sublease further provided that Winn-Dixie remained responsible for paying
rent to the Sells in the amount of the ad valorem real estate taxes and fire and extended coverage
insurance premiums, stating that “[n]othing contained in the Sublease shall be construed to require
[Bradfords] to pay any portion of the [Sells’] fire and extended coverage insurance as set forth in [the
overlease], and...ad valorem real estate taxes as set forth in [the overlease].
Before Mr. Bradford signed the sublease with Winn-Dixie, he approached and negotiated an
agreement with the Sells, in order to ensure that the Sells would continue to rent to him in the event
that the overlease was terminated. After negotiation, the Sells and the Bradfords executed a
Recognition Non-Disturbance Agreement (the “RNDA”) on September 28, 2004. The RNDA
contains the following provision, the interpretation of which is the crux of the issue before the court:
The Owner [Sell] agrees with Sublessee [Bradford] that in the event
that, for any reason whatsoever, the Overlease shall be terminated or
come to an end during the term of the Sublease, and [Winn-Dixie’s]
rights under the Overlease and under the Sublease have terminated
and are no longer of any force and effect, (a) the [Sells] and
[Bradfords] shall enter into a substitute lease (the “Substitute Lease”)
which shall contain the same terms and conditions as the Overlease,
except that [Bradfords’] monthly rent obligations under the
Substitute Lease shall be the same as the [Bradfords’] monthly rent
obligations under the Sublease...
(Emphasis added).
Winn-Dixie filed for Chapter 11 bankruptcy on February 21, 2005. On December 8, 2005,
the federal bankruptcy court granted Winn-Dixie’s motion to reject the overlease with the Sells and
the sublease with the Bradfords. Shortly thereafter, this dispute arose between the Sells and
Bradfords over who was responsible for paying for the ad valorem real estate taxes and insurance
premiums for the fire and extended coverage. Each party proposed and offered a substitute lease that
required the other to pay the tax and insurance items in dispute. The parties stipulated that the taxes
and insurance at issue represented an expense of nearly $73,000 per year.
The Bradfords filed this action for declaratory judgment that the RNDA, the overlease, and
the sublease required the Sells to pay for the disputed taxes and insurance. The Sells answered and
counterclaimed. Each party requested that the trial court require them to enter into the replacement
lease proposed by that party. The Sells filed a motion in limine to exclude parol evidence, arguing
that the terms of the controlling documents were clear and unambiguous. The trial court took the
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motion in limine under advisement and did not explicitly rule on it, but the trial court heard proof,
including the testimony of various witnesses, at a hearing on September 22, 2006.
The trial court entered its order on September 28, 2006, holding that the RNDA “is clear on
its face.” The trial court stated that the question presented is what Bradford’s “monthly rent
obligations” are under the sublease, and further stated as follows:
The term “monthly rent” appears nowhere in either the Overlease or
the Sublease. Therefore, use of this term in the RNDA is something
new. The rental obligations contained in the Overlease are all annual
obligations yet regardless of when they are due, each is referred to as
“additional rental.” (This includes the annual rent, excess rent, fire
insurance, and taxes.) Therefore, the Court must conclude that the
total of the annual rent, excess rent, fire and extended insurance, and
the taxes are the “rent” agreed to between Winn-Dixie and Sell. It
is clear from the RNDA that the rent which Bradford agrees to pay to
Sell will be the same as Bradford’s rent to Winn-Dixie. The rent to
Winn-Dixie clearly appears to be base rent and the additional rent per
Exhibit A and clearly does not include fire and extended coverage and
ad valorem real estate taxes.
The trial court ordered the parties to enter into the substitute lease agreement proposed by the
Bradfords.
II. Issues Presented
The Sells appeal, raising the following issues:
1. Whether the trial court erred in admitting parol evidence at the hearing to contradict, vary,
or alter the terms of the overlease, RNDA, and sublease.
2. Whether the trial court erred in directing that the parties enter into the proposed substitute
lease submitted by the Bradfords, thereby making the Sells responsible for paying the tax and
insurance costs at issue.
III. Standard of Review
In a non-jury case such as this one, we review the record de novo with a presumption of
correctness as to the trial court’s determination of facts, and we must honor those findings unless the
evidence preponderates to the contrary. Tenn. R. App. P. 13(d); Union Carbide Corp. v. Huddleston,
854 S.W.2d 87, 91 (Tenn. 1993). The trial court’s conclusions of law are accorded no presumption
of correctness. Campbell v. Florida Steel Corp., 919 S.W.2d 26, 35 (Tenn. 1996); Presley v.
Bennett, 860 S.W.2d 857, 859 (Tenn. 1993). “The interpretation of written agreements, like the
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lease at issue, is a matter of law that this Court reviews de novo on the record according no
presumption of correctness to the trial court’s conclusions of law.” Allstate Ins. Co. v. Watson, 195
S.W.3d 609, 611 (Tenn. 2006).
IV. Analysis
A. Parol Evidence
As noted, the Sells moved in limine to exclude parol evidence, arguing that the controlling
documents were clear and unambiguous. The initial question for the trial court to determine,
therefore, was whether the language at issue contained in the RNDA, overlease, and sublease was
ambiguous. In Watson, the Supreme Court provided the following guidance for the interpretation
of written agreements:
A cardinal rule of contract interpretation is to ascertain and give effect
to the intent of the parties. Christenberry v. Tipton, 160 S.W.3d 487,
494 (Tenn.2005). In interpreting contractual language, courts look to
the plain meaning of the words in the document to ascertain the
parties' intent. Planters Gin Co. v. Fed. Compress & Warehouse Co.,
78 S.W.3d 885, 889-90 (Tenn.2002). This Court's initial task in
construing the lease at issue is to determine whether the language is
ambiguous. Id. at 890. If the language is clear and unambiguous, the
literal meaning controls the outcome of the dispute. Id. If, however,
the words in a contract are susceptible to more than one reasonable
interpretation, the parties' intent cannot be determined by a literal
interpretation of the language. Id.
Contractual language “is ambiguous only when it is of uncertain
meaning and may fairly be understood in more ways than one.”
Farmers-Peoples Bank v. Clemmer, 519 S.W.2d 801, 805
(Tenn.1975).
Watson, 195 S.W.3d at 611.
The parol evidence rule provides that parol evidence “is inadmissible to contradict, vary, or
alter a written contract where the written instrument is valid, complete, and unambiguous, absent
fraud or mistake or any claim or allegation thereof.” Airline Const. Inc. v. Barr, 807 S.W.2d 247, 259
(Tenn. Ct. App. 1990); 32A C.J.S. Evidence § 851 at 213 (1974); Tenn. Code Ann. § 47-2-202; see
Littlejohn v. Fowler, 45 Tenn. (Coldwell) 284 (1867); Marron v. Scarbrough, 314 S.W.2d 165
(Tenn. Ct. App. 1958).
In the instant case, both the Sells and the Bradfords argue that the contractual language at
issue is clear and unambiguous, and that it plainly supports their position. Although the trial court
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did not rule on the motion in limine before the hearing, at which five witnesses testified and
numerous extrinsic documents were admitted into evidence, the trial court stated in its order
reflecting its final judgment that “[b]efore considering any extrinsic evidence, the Court must decide
whether the terms of the RNDA are plain and unambiguous on their face.” Then, after analyzing the
terms and conditions of the contracts, the trial court held that “the [RNDA] is clear on its face.” The
trial court made no reference in its order to any extrinsic evidence presented, nor did it make any
findings of fact beyond its citations to the contractual provisions at issue. Thus, there is no indication
in the record that the trial court considered the parol evidence presented at the hearing in deciding
the case.
B. Interpretation of Contract
We now turn to a close examination of the pertinent contractual agreements. The critical
language of the RNDA is the parties’ agreement that in the event the overlease is terminated, they
“shall enter into a substitute lease...which shall contain the same terms and conditions as the
Overlease, except that [the Bradfords’] monthly rent obligations under the Substitute Lease shall be
the same as the [Bradfords’] monthly rent obligations under the Sublease... .” As the trial court
correctly noted, this language raises the question of what comprises the Bradfords’ “monthly rent
obligations” under the sublease.
In reading this language and giving each word and phrase its usual and ordinary meaning, we
are of the opinion that the use of the word “monthly” to qualify the term “rent” is significant. The
parties could have, but did not, state that all of the Bradfords’ rent obligations would be the same
in the substitute lease as they were in the sublease. The plain language of the RNDA indicates that
they agreed that only the “monthly” rent obligations would be as provided in the sublease, and that
all the other terms and conditions of the substitute lease, including rent obligations that cannot be
reasonably construed as “monthly,” would be the same as in the overlease between the Sells and
Winn-Dixie. We do not find the word “monthly” to be ambiguous; it is not susceptible to more than
one reasonable interpretation. Webster’s Ninth New Collegiate Dictionary (1986) defines “monthly”
as “once a month; by the month; of or relating to a month; payable or reckoned by the month; lasting
a month; occurring or appearing every month.”
The sublease provides in pertinent part as follows:
RENT. [Bradford] shall pay rent...as follows:
(i) Base Rent. Base Rent shall be paid in equal monthly
installments and shall be due and payable in advance on the
first day of each month and every calendar month of the
Sublease Term...[the Bradfords] shall pay to [Winn-Dixie]
minimum guaranteed rent (“Base Rent”) for the Premises as
follows:
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i. $16,000 per month from the Effective Date
through December 31, 2005; and;
ii. $32,000 per month from January 1, 2006
through the balance of the Sublease Term.
(ii) Additional Rent. In addition, [Winn-Dixie] and [the
Bradfords] shall pay additional rent (“Additional Rent”) in the
amount and at the times provided on Exhibit A attached
hereto and made a part hereof...Base Rent and Additional
Rent are herein collectively referred to as the “Rent.”
EXHIBIT A
Additional Rent
[BRADFORDS’] ADDITIONAL RENT OBLIGATIONS.
[The Bradfords] shall pay percentage rent as set forth in Paragraph 1,
Rental, of the [overlease].
* * *
[WINN-DIXIE’S] ADDITIONAL RENT OBLIGATIONS.
[Winn-Dixie] shall pay to [the Sells], when due, [Winn-Dixie’s] costs
of [the Sells’] fire and extended coverage insurance as set forth in
Paragraph 13, Fire, of the [overlease], and [Winn-Dixie’s] share of ad
valorem real estate taxes as set forth in Paragraph 32, Real Estate
Taxes, of the [overlease]. Nothing contained in the Sublease shall be
construed to require [the Bradfords] to pay any portion of the [Sells’]
fire and extended coverage insurance...and [Winn-Dixie’s] share of
ad valorem real estate taxes[.]
[Italics added; numbering omitted]. It is clear from the above that the only “monthly” rent obligation
provided in the sublease is the $16,000 per month through December 31, 2005 and the $32,000 per
month thereafter. The Bradfords cite and rely upon the final sentence in the sublease quoted above;
but by the parties’ RNDA agreement, the only significant provisions of the sublease, as regards the
creation of a substitute lease, are those that set forth the Bradfords’ “monthly rent obligations.”
Because the provision stating that nothing shall be construed in the sublease to require the Bradfords
to pay ad valorem taxes and fire and extended coverage insurance premiums does not pertain to a
monthly rent obligation, it is irrelevant to the issue of the parties’ obligations under the substitute
lease. By their agreement, the terms and conditions of the overlease control that issue.
As per the parties’ agreement under the RNDA, we turn to the overlease to determine the
terms and obligations other than the Bradfords’ “monthly rent obligations under the sublease.” The
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overlease clearly provides that the tenant is responsible for additional rent in the amount of the fire
and extended coverage insurance premiums and ad valorem real estate taxes:
During the term of this Lease and any extensions, Tenant agrees to
pay to Landlord as additional rental the amount of the premium for
Landlord’s fire and extended coverage insurance above described
attributable to the demised premises.
* * *
During the term of this Lease and any extensions thereof, Tenant
agrees to pay to Landlord as additional rental the amount of ad
valorem real estate taxes levied against the demised premises.
The language at issue here is clear and unambiguous, and therefore “it is the function of [the] court
to interpret and enforce contracts as they are written, notwithstanding they may contain terms which
may be thought harsh and unjust. A court is not at liberty to make a new contract for parties who
have spoken for themselves.” Petty v. Sloan, 277 S.W.2d 355, 359 (Tenn. 1955); Boyd v. Comdata
Network, Inc. 88 S.W.3d 203, 223 (Tenn. Ct. App. 2002) (“a court's role is to enforce an
unambiguous contract as it is written unless the contract is being challenged based on fraud or
mistake”).1
We are of the opinion that to require the parties to enter into the Bradfords’ proposed
substitute lease agreement would effectively be to elide the word “monthly” from the “monthly rent
obligation under the sublease” provision of the RNDA agreement. “The courts, of course, are
precluded from creating a new contract for the parties.” Bob Pearsall Motors, Inc. v. Regal
Chrysler-Plymouth, Inc. 521 S.W.2d 578, 580 (Tenn. 1975).
The Sells’ proposed substitute lease agreement contains terms and conditions identical to the
pertinent sections of the overlease, except for requiring the Bradfords to pay $32,000 per month in
rent instead of the $39,056.33 per month the Sells were receiving from Winn-Dixie. This proposed
substitute lease, we believe, reflects the RNDA agreement of the parties as negotiated, memorialized
in writing, and signed by the parties.
V. Conclusion
For the aforementioned reasons, the judgment of the trial court is reversed, and the case
remanded with instructions for the trial court to enter judgment requiring the parties to enter into the
1
As regards an “allegation of fraud or mistake,” the Bradfords alleged fraud in the inducement of the RNDA
and promissory estoppel in their complaint. However, they did not seriously pursue these allegations at trial, and do not
assert them on appeal. Their brief admits that “the trial court’s order in this case was not based on fraudulent inducement
or promissory estoppel.” We note that in any event, nothing in the Bradfords’ proof regarding the circumstances
surrounding the parties’ negotiations prior to executing the RNDA supports an allegation of fraudulent inducement or
promissory estoppel.
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Sells’ proposed substitute lease agreement as required by the clear and unambiguous language of the
RNDA. Costs on appeal are assessed to the Appellees, Donald F. Bradford and Wendy L. Bradford.
_________________________________________
SHARON G. LEE, JUDGE
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