01/23/2020
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
Assigned on Briefs December 2, 2019
BENIGO CRUZ v. SHERMAN BYRD
Appeal from the Circuit Court for Hamilton County
No. 17-C-1099 L. Marie Williams, Judge
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No. E2019-00444-COA-R3-CV
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This is an appeal regarding the breach of a lease agreement between Mr. Cruz, the
landlord, and Mr. Byrd, the tenant. Mr. Cruz initiated this action against Mr. Byrd
because he did not pay any rent for the term of the lease. Mr. Byrd argued that he was
not obligated to pay rent because the lease was rendered void and unenforceable upon
discovery of a city ordinance that prohibited the intended use of the Property. We
disagree. There was no evidence, and Mr. Byrd did not assert, that Mr. Cruz took any
action that would violate the agreement; he was able to exercise his right to occupy the
Property for the entire term of the lease. Therefore, the lease was enforceable.
Furthermore, the lease provided Mr. Byrd a right to terminate if the designated use of the
Property was prohibited by law; he did not invoke this remedy. Thus, Mr. Byrd was
obligated to pay the rent owed under the lease. Finding no error in the trial court’s
decision, we affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed
RICHARD H. DINKINS, J., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J., and ARNOLD B. GOLDIN, J., joined.
W. Gerald Tidwell, Jr., Chattanooga, Tennessee, for the appellant, Sherman Byrd.
R. Dee Hobbs, Chattanooga, Tennessee, for the appellee, Benigo Cruz.
MEMORANDUM OPINION1
1
Tenn. R. Ct. App. 10 states:
This Court, with the concurrence of all judges participating in the case, may affirm, reverse or
modify the actions of the trial court by memorandum opinion when a formal opinion would have no
I. Procedural Background
Sherman Byrd (“Defendant”) entered into a one-year lease agreement with Benigo
Cruz (“Plaintiff”) for commercial property located at 121-A Honest Street, Chattanooga,
Tennessee (“the Property”), on November 24, 2015. The lease term began on February
24, 2016, and ended on February 24, 2017; the total annual rent was $60,000.00, payable
in monthly installments of $5,000.00, and Defendant paid a $15,000 security deposit.
The lease provided that Defendant would use the Property as a nightclub and
performance hall, comply with city and county licensing laws, and accept the Property
“as is”; at issue in this case is a provision that gave Defendant the right to terminate the
lease with thirty (30) days written notice if the intended use of the Property was
prohibited by any law or ordinance.
Because the Property was next to an adult entertainment club, a city ordinance
would not allow Defendant to receive a license to sell beer; consequently, he did not
operate the nightclub, although he occupied the Property for the term of the lease.
Defendant did not pay rent, and on January 19, 2017, Plaintiff filed a detainer warrant in
Hamilton County General Sessions Court, seeking possession of the Property, all unpaid
rent, and restitution for damages to the Property. At a hearing on February 6, Plaintiff
was awarded possession of the Property; a separate hearing to address damages was held
on August 8, and the final order was entered on September 12, 2017. The order allowed
Defendant to recover certain items from the Property; held that Plaintiff was not entitled
to unpaid rent; and that Plaintiff could offset any damages to the Property caused by
Defendant with the security deposit currently held by Plaintiff.
Defendant timely appealed to Hamilton County Circuit Court and trial was held on
October 31, 2018. On December 6, the court granted Plaintiff judgment for $113,692 for
unpaid rent, damage to the roof, a water bill, city and county taxes, and attorney’s fees.
Pertinent to the issues in this appeal, the court held:
The Court finds [Defendant] was well aware of the condition of the
premises and specifically agreed to rent the building in its as is condition
and subject to the existing ordinances. He agreed to comply with all
licensing laws. . . .
***
Defendant contends there is no obligation for rent because the
plaintiff materially breached the lease agreement because there was in
existence a City ordinance that prevented the defendant from getting a beer
precedential value. When a case is decided by memorandum opinion it shall be designated a
“MEMORANDUM OPINION”, shall not be published, and shall not be cited or relied on for any reason
in any unrelated case.
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license. The Court finds this interpretation of the contract would require a
finding for the premises to be used as a nightclub and performance hall,
alcohol would be served. Further, the lease provides a remedy for the
prohibition by law of a designated use of the premises. That remedy is the
right of the tenant to terminate the lease by giving 30 days notice. This
remedy was never invoked. . . . The Court does not find this clause can be
read into the contract. Accordingly, the Court finds this is an enforceable
contract rent is owed by defendant to plaintiff for one year.
The court held that all credibility issues weighed in favor of Plaintiff. 2
Defendant appeals, raising the following issue:
Whether the circuit court erred in finding the lease an enforceable contract
where a city ordinance made the intended and listed use of the property
impossible or impractical.
II. Standard of Review
Review of the trial court’s findings of fact is de novo upon the record accompanied
by a presumption of correctness, unless the preponderance of the evidence is otherwise.
See Tenn. R. App. P. 13(d); Kaplan v. Bugalla, 188 S.W.3d 632, 635 (Tenn. 2006).
Review of the trial court’s conclusions of law is de novo with no presumption of
correctness afforded to the trial court’s decision. See Kaplan, 188 S.W.3d at 635.
There is no transcript of the proceedings in the record on appeal. Defendant
initially filed a statement of the evidence in accordance with Rule 24(c) of the Tennessee
Rules of Appellate Procedure; this was objected to by Plaintiff, who also filed a
statement. The differences between the statements were settled by the trial court in
accordance with Rule 24(e), and the facts necessary to resolve this appeal are not
disputed.
2
In addition to holding that the lease was an enforceable contract, the court made the following findings
in support of the judgment against Defendant for damage to the roof, the water bill, and city and county
taxes: the court found that modifications were made to the Property; that the lease provided that any
improvements to the Property would be at the expense of the Defendant; and that Plaintiff was more
credible than Defendant and had satisfied the burden of establishing that the damage to the roof was done
by Defendant or his agents. Upon our review, we conclude that the court’s judgment is supported by the
record. The lease expressly provided that Defendant was responsible for the payment of utilities, taxes,
and any improvements to the Property; he does not dispute these provisions on appeal.
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III. Analysis
Defendant argues that the court erred in holding that the lease was an enforceable
contract when a city ordinance, preventing him from obtaining a beer license, made him
unable to operate the Property as a nightclub. He contends that Plaintiff materially
breached the lease, which warranted that the “uses of the leased premises [were] not
prohibited” by any law or ordinance, and, thus, is not entitled to any rent for the Property.
The lease allowed Defendant to occupy the premises without paying rent from
November 14, 2015, to February 23, 2016, in order to renovate the Property. Defendant
testified that, over that period of time, he spent over $50,000 on renovations to the
building, including the HVAC ductwork, bathroom renovations, and other general
renovations; that on January 7, 2016, he applied for a beer license and learned he could
not receive one because of the city code provision. He testified that he had been in the
nightclub business for forty years and had previously leased the Property as a non-
alcoholic venue for teens; that he decided to open a teen club to try to recover some of the
money he had invested into the Property, but that he lacked the $25,000 necessary to
complete the installation of the HVAC units; and that he asked Plaintiff to pay for the
units, and that Plaintiff refused his request.
We do not agree that the lease was not enforceable or that Defendant did not have
to pay rent because he could not get a beer license. As noted in Merwin v. Davis:
An enforceable contract is an agreement that results from a meeting of the
minds in mutual assent to the terms, is based upon sufficient consideration,
is free from fraud or undue influence, is not against public policy, and is
sufficiently definite to be enforced. See Thompson v. Hensley, 136 S.W.3d
925, 929–30 (Tenn. Ct. App. 2003) (citing Klosterman Dev. Corp. v.
Outlaw Aircraft Sales, Inc., 102 S.W.3d 621, 635 (Tenn. Ct. App. 2002)).
Merwin v. Davis, No. E2016-00508-COA-R3-CV, 2017 WL 935107, at *2 (Tenn. Ct.
App. Mar. 9, 2017). Defendant does not argue that the above factors that make a contract
enforceable were not met with respect to the lease and, upon our review, we fail to
discover any evidence of any fact or condition that would make the lease unenforceable.
The obligations under the lease, including the obligation to pay rent, were not
conditioned on whether or not Defendant obtained the beer license; moreover, as noted
by the trial court, there was no provision in the lease that alcohol necessarily would be
served.
We also disagree with Defendant’s argument that his performance under the lease
was impossible or otherwise excused because he did not receive a beer license. The lease
stated that defendant “will comply with all city and county licensing laws”; Plaintiff
testified that this provision had been handwritten into the lease because he had no
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knowledge of the nightclub business and relied on Defendant’s knowledge and
experience. Defendant testified that he had operated the building as a teen club
previously, without selling alcohol, and that he did not know that a city ordinance would
prevent him from obtaining a beer license. The court found all credibility issues to weigh
in favor of Plaintiff, a finding we afford great deference.3 Significantly, despite not
receiving the beer license, Defendant did not avail himself of the opportunity to terminate
the lease on 30 days’ notice; rather, he remained in possession of the premises.
IV. Conclusion
For the foregoing reasons, Defendant was obligated to pay rent during the time he
was in possession of the premises; we affirm the judgment of the trial court in all
respects.
RICHARD H. DINKINS, JUDGE
3
In this regard, we note that the trial court included in the Statement of the evidence that:
The property had been used as a nightclub in the past and had been leased by the
defendant. The defendant told the plaintiff he “had a lot of connections downtown” and
could get the necessary licenses and he was working on it.
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