Chattanooga Associates v. Cherokee Warehouses, Inc. ( 1999 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
FILED
October 18, 1999
Cecil Crowson, Jr.
Appellate Court Clerk
CHATTANOOGA ASSOCIATES, )
LIMITED PARTNERSHIP, ) 03A01-9901-CH-00021
)
Plaintiff/Appellee ) Appeal As Of Right From The
) HAMILTON CO. CHANCERY COURT
vs. )
)
CHEROKEE WAREHOUSES, INC., ) HON. HOWELL N. PEOPLES,
) CHANCELLOR
Defendant/Appellant )
For the Appellant: For the Appellee:
Frank P. Pinchak Bruce C. Bailey
WITT, GAYTHER & WHITAKER, P.C. CHAMBLISS, BAHNER & STOPHEL, P.C.
1100 SunTrust Bank Building 1000 Tallan Building
736 Market Street Two Union Square
Chattanooga, TN 37402-4856 Chattanooga, TN 37402
REVERSED and REMANDED Swiney, J.
OPINION
This is an appeal from an Order of the Chancery Court of Hamilton County awarding
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Plaintiff $46,249.47 for the cost of construction (repaving) on the parking lot of a storage warehouse
which Chattanooga Associates Limited Partnership (“Plaintiff”) leased to Cherokee Warehouses, Inc. (“
Defendant”), plus late fee and attorney's fees, under the terms of the Lease, for a total judgment of
$71,288.77. Defendant appeals, and raises these issues:
1. Whether the Chancellor Erred in Refusing to Bar
Recovery by Virtue of the Plaintiff's Breach of the
Implied Covenant of Good Faith and Fair Dealing.
2. Whether the Chancellor Erred in Concluding that the Defendant
was liable under the lease agreement with the Plaintiff for
its share of the paving “repairs.”
3. Whether the Chancellor Erred in Awarding a 15% Late Charge.
For the reasons stated in this Opinion, we reverse the judgment of the Trial Court and remand the
case to the Trial Court for further proceedings in accordance with this opinion.
BACKGROUND
Cherokee Warehouses, Inc. is in the public warehouse business. It owns 18 warehouses
(three million square feet) and leases other warehouses. In August1992, it leased 56% of a warehouse
owned by Chattanooga Associates, Ltd. In March 1993, Cherokee expanded its occupancy to 79% of
the space. The other 21% of the space in that warehouse was subject to an ongoing lease to Red Food
Stores. The Lease Agreement between Cherokee and Chattanooga Associates provides, as pertinent:
1. Payment of Rental; Tenant's Proportionate Share.
. . . Tenant covenants and agrees to pay the rent herein reserved and
each installment thereof promptly when and as due, together with all
other sums, reimbursements, costs, fees, charges and expenses required
to be paid by Tenant to Landlord from time to time hereunder, all of
which shall be deemed additional rent hereunder.
13. Repairs; Maintenance and Common Areas.
(f) To the extent Landlord elects to perform or otherwise performs any
maintenance or repairs on the building, or the land on which the building
is situated, including but not limited to, landscaping, grass cutting,
resurfacing of paved areas, removal of snow or ice from paved areas,
etc., Tenant agrees to pay its proportionate share (as defined in Section
1) of the costs incurred by Landlord therefor, within ten days of demand
therefor by Landlord, which demand shall be accompanied by an invoice
indicating the maintenance and repairs undertaken by Landlord in regard
to such areas, the cost incurred in connection therewith, and Tenant's
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breakdown of Tenant's proportionate share thereof.
* * *
16. Default.
(b) In the event of any default (as defined in subsection [a] above),
Landlord, in addition to any and all legal and equitable remedies it may
have, shall have the following remedies:
* * *
. . . In the event Landlord brings any action against Tenant to enforce
compliance by Tenant with any covenant or condition of this Lease,
including the covenant to pay rent, Tenant shall promptly reimburse
Landlord for all costs and expenses incurred by Landlord in bringing,
defending and/or prosecuting such action, including, but not limited to,
attorneys' fees.
(c) In the event Tenant fails to pay Landlord any payment of rent (basic
or additional) due hereunder within 10 days from the date on which any
such payment was due, in addition to all other rights and remedies
hereunder or at law or in equity to which Landlord may be entitled,
Landlord may at Landlord's option charge Tenant a late charge equal to
15% of the payment or other such charge, which charge shall be payable
by Tenant to landlord within 5 days of demand therefor.
In early fall of 1994, Red Food Store employees contacted Plaintiff’s general manager,
Pete Smith, and complained about a large pothole outside the portion of the warehouse occupied by Red
Food. Plaintiff contacted a large real estate developer in Chattanooga, CBL (the owner of Hamilton
Place Mall), and asked for the name of a qualified civil engineer. Plaintiff was referred to Charles Miller,
a licensed civil engineer with special experience in grading, water, pavement design, roadway design,
drainage, and parking lots, who had designed the parking lots for Hamilton Place Mall. Plaintiff told
Miller it had a warehouse, “. . . and that the parking lot was failing, potholes and those kinds of things,
would I go out and look at it and give her a contract to come up with -- to mitigate the failures in the
asphalt at this location.”
Miller sent a proposal to Plaintiff, dated and faxed on October 21, 1994. He advised
that the pavement failures should be filled and re-paved, then the whole parking lot should be paved
over. The primary reason for these failures was water getting into the subgrade. It was Miller’s opinion
that if they just repaired the cracks and didn’t repave the whole area, then the joints where new asphalt
and old asphalt join (“cold seams”) would develop leaks, and the repair would have to be done over.
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Also, Miller felt the concrete trailer pads should be extended by at least eight feet and concrete pads
should be installed for the dumpsters because the lack of pads had caused tractor-trailers and dumpster
trucks to punch holes in the asphalt. Miller also noticed tracks in the grass and recommended that
bollards1 be installed to keep trucks off the grass. His cost estimate for the recommended work was
$75,000, and his fee for the plans and specifications was $5,000, including the cost of receiving bids and
periodic inspection. Plaintiff accepted Miller’s proposal by signing the proposal letter the same day.
Miller testified that he had never been to the property before he was asked to quote and
supervise this job, and he had no idea of its condition in 1992, when these parties entered into their lease
agreement. When the project started, he did not have any formal discussions with the tenants but, as a
passing courtesy, he stopped by and spoke to someone, whose name he does not know, about the fact
that they were going to be digging and they would work with the tenants in getting the trucks in and out.
Although they doubled the size of the concrete pads, if they had not put down new concrete, they still
would have put down new asphalt because there were holes in the pavement where the truck stanchions
were too big and overshot the existing pads. Although the project improved the value of the property,
Miller regards the job as a maintenance and repair job, not a new construction project, and thinks that
any repairs will improve the value of any property.
The Trial Judge asked Miller whether he could produce a breakdown of what it would
cost just to repair the potholes, eliminate the increased dolly areas, eliminate the pads for the dumpsters,
and eliminate the bollards, and Miller replied that it could be done.
Susan Katzenberg, one of the two general partners of the Plaintiff (the other partner is
her father), testified that the partnership acquired this property from the developer when the warehouse
was one or two years old, in 1976. In April or May of 1992, when the partnership’s realtor was
negotiating a lease agreement with Defendant, she talked with Jim Kennedy of Cherokee Warehouse by
phone because the realtor told her there were some issues preventing the closing of the lease. She told
Kennedy that she wanted to go over point by point any of the issues that were of concern to him. He
replied that his father had found their lease cumbersome and didn’t want to hire a lawyer to go over it, so
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they had found some other warehouse property and had signed a much shorter lease on it. However,
Kennedy did not think the lease itself was particularly an issue, and perhaps they would need more space
later and would lease from her.
On August 27, 1992, Defendant did sign a lease with Plaintiff. That lease was amended
twice because Defendant increased their rental space from 56% to 79% and because Defendant wanted
to reduce the term of the lease from one-year to month-to-month. Plaintiff viewed Defendant as being
there on a short-term lease, providing current income to Plaintiff while it continued to actively market the
property for a long-term tenant. Plaintiff doesn’t view Defendant as a short-term tenant in hindsight,
since it actually stayed there three years. Counsel for Defendant asked Ms. Katzanberg whether the
work done under the repaving contract would have enhanced the marketability of the property to
potential long-term lessees, to which she replied, “Not necessarily. Possibly.” If Plaintiff had had an
offer from a long-term lessee, it would have given Cherokee notice to move out.
Ms. Katzenberg testified that she decided to repave the parking lot because Red Food
complained about the potholes. She went out to the parking lot and looked at the problem, and because
the failure was fairly extensive, she hired Miller to plan and supervise the job. She entered the contract to
repave on December 20, 1994. The work started that day and ended the last week in January 1995.
She sent a letter to Defendant on December 28th notifying them that the work would be done. Ms.
Katzenberg did not consider notifying the Defendant before then, as it was her view that the work
needed to be done, Defendant was required to pay for it under the lease terms, and prior notice to
Defendant was not required. She billed Red Food for its portion (21%) of the contract in its annual bill
for additional rent under the terms of the lease, and Red Food paid its bill. When she sent the bill to
Defendant for its 79% of the contract as part of its annual bill for additional rent, Defendant refused to
pay for the work, but paid for the other annual charges. Defendant then gave Plaintiff 60 days notice and
moved out of the warehouse in May 1995, not having paid the $55,866.22. Plaintiff incurred $6,400 in
attorney fees for the law firm of Ballard-Spahr in Baltimore and $11,000 for the law firm of
Chambliss-Bahner in Chattanooga in attempting to collect the debt from Defendant, plus expenses.
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David Holt, CPA, whose accounting firm does work for Defendant, testified that he
reviewed the history of the repaving project at Defendant’s request, and opined that, from both a
financial and an accounting standpoint, and from a tax return filing standpoint, the expenditures that were
made would constitute capital additions rather than repair items. His opinion was based on
generally-accepted accounting principles and income tax law and regulations, IRS rulings and case law,
which hold that “a capital item is one that would appreciably prolong the useful life of an asset or
materially enhance its value, arrest deterioration and prolong the life [of the capital asset].”
Jim Kennedy, President of Cherokee, testified that his company owns 18 warehouses
and leases others (13 or 14 at the time of this controversy) from owners, as well as leasing to tenants the
18 buildings it owns. In his business, Mr. Kennedy makes it his policy to know about the (competing)
warehouse space available in the area, and he has known of this particular warehouse for 20 years or
more. There are three warehouses close together, and in the 1970s his company leased each of the
other two briefly. His general impression is that the buildings and the pavement around them have been
pretty much the same over the 20 years. During the time Defendant leased the building in this suit, it was
paying a reduced rental rate because the space was still being shown to potential long-term tenants and
Defendant knew it could be moved out on short notice. The agreement was mutually beneficial.
Defendant got a good rental rate ($1.80 per sq. ft. vs. $2.65 per sq. ft.), and Plaintiff got some income
from a short-term tenant while trying to find a long term tenant. Both parties “understood that this was a
short-term arrangement.”
Kennedy testified that he saw little, if any, difference in the condition of the parking area
from the time Defendant first leased it in September1992 until it was repaved in January 1995. He may
have seen one or two potholes. If Jane Katzenberg had told him, in October 1994, that she was
planning to commence this project in December and then bill him for it, he would have “found a way to
get out of the building.”
Pete Smith, thirty-plus year employee and warehouse manager for Defendant, testified
that he had managed this warehouse during the entire time that Defendant leased it from Plaintiff. When
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Defendant moved in, there were two potholes in the pavement. One was large - “probably a three-foot
square.” The warehouse had flooding problems when it rained. Tractor-trailer drivers sometimes
wouldn’t drop their trailers at the Defendant’s site because they didn’t want to get their feet wet. 2 There
was a problem with the truck pads, which were originally designed in 1976 for trailers 45 - 48 feet long,
but when the regulations changed allowing trailers to be longer, the pads were too short.
Bob Hellerstedt, thirty-plus year employee for Defendant, testified that he first looked at
the warehouse with the realtor in 1992. At that time, it had been sitting empty and Plaintiff was trying to
find a long-term tenant. He inspected the building and the pavement before Defendant leased it, and
could state the condition of the pavement at the time they leased it and at the time the Kitzmiller-Murray
repaving contract was undertaken. He said,
Well, I think, as Pete said, it didn’t change that much. There were some
potholes or holes around those dolly pads, especially over around the
Red Food section and on down on the other end. But, for the most part,
the general area was in pretty decent shape . . . it [the potholes] was
there when we moved in there . . . it’s one thing to patch a pothole, but
when you start a general improvement project where you’re changing the
slopes of the lot itself to improve the thing, which it did, I mean, the work
did that, we didn’t have to wade in any more after that happened when it
rained, but that was – that’s certainly not repair in my mind . . . [d]own
closer to the building, I guess they raised that elevation, the pavement
itself, I would say maybe as much as five or six inches.
DISCUSSION
The Trial Court found that the lease agreement provided that Defendant was leasing the
space “as is,” and that Defendant would pay its proportionate share of “any maintenance or repairs.”
Defendant occupied the space for three years, and after two of those years, Plaintiff investigated the
possibility of making repairs to the parking lot. An engineer (Miller) made recommendations for the
repairs, and those recommendations were carried out. Defendant occupied 79% of the warehouse
space, and they were billed for 79% of the cost of the repairs.
The Trial Court found that the work done in this case involved both repairs and
improvements. The Trial Court ordered that Plaintiff is entitled to recover from Defendant the cost of
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necessary repairs but is not entitled to recover enhancements or improvements, such as the enlargement
of pads, installation of new pads, and installation of bollards. The Trial Court then referred the matter to
a special Master to determine the cost of reasonable repairs solely of the potholes and cracks in the
parking lot, with 79% of the cost to be borne by the Defendant. Other costs, including attorney fees,
were to be decided after the Master had made his determination.
On February 11, 1999, the Master filed his report, indicating that the matter was
submitted to him upon stipulations of the parties. The apparent stipulation (prepared by counsel for
Plaintiff but not signed by either party, and appended as Exhibit 1 to the Master’s Report) stated that
Defendant owed Plaintiff $46,249.47, before fees, costs, or interest. The Trial Court adopted this “
finding” and enforced against Appellant the contract provisions for attorney fees and a 15% late fee on
failure to pay for the repairs.
Our review is de novo upon the record, accompanied by a presumption of the
correctness of the findings of fact of the Trial Court, unless the preponderance of the evidence is
otherwise. Rule 13(d), T.R.A.P.; Lindsey v. Lindsey, 976 S.W. 2d 175,178 (Tenn. App. 1997). 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. App. 1992). Park Place also described the general principles of contract
interpretation:
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.
Defendant first asks this Court to reverse the decision of the Trial Court and bar the
Plaintiff’s recovery because the Plaintiff “was under a duty to disclose her secret plan to construct
extensive improvements, and she failed to do so.” Defendant contends the Plaintiff’s conduct clearly
violated the implied covenant of good faith and fair dealing, citing Winfree v. Educators Credit Union,
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900 S.W.2d 285 (Tenn. App. 1995)(perm. app. denied), and Covington v. Robinson, 723 S.W.2d
643 (Tenn. App. 1986) (perm. app. denied).
In Winfree, plaintiff entered into a “Memorandum of Understanding” with Educators
Credit Union in which he agreed to act as an unpaid marketing representative for ECU in consideration
for the opportunity to sell cancer insurance to ECU’s members. As policies were sold, payments for
those policies were deducted from the payroll checks of credit union members. Four years later, under a
new administration, ECU cancelled the payroll deductions for Winfree’s insurance policies, causing a
number of ECU members to cancel their policies. In determining whether ECU had violated its “
contractual obligation of good faith and fair dealing,” this Court stated that:
There is an implied undertaking in every contract on the part of each
party that he will not intentionally or purposely do anything . . . which will
have the effect of destroying or injuring the right of the other party to
receive the fruits of the contract. Ordinarily if one exacts a promise from
another to perform an act, the law implies a counterpromise against
arbitrary or unreasonable conduct on the part of the promissee.
However, essential terms of a contract on which the minds of the parties
have not met cannot be supplied by the implication of good faith and fair
dealing.
Winfree at 289, citing Section 256 of American Jurisprudence, Second Edition, on Contracts.
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
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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 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 extend
beyond the agreed upon terms of the contract and the reasonable
contractual expectations of the parties. [citations omitted]
Wallace at 687.
For Defendant to prevail on this issue, it must prove that the Plaintiff’s actions were not a
performance of the contract according to its terms. This is particularly true in this case where the parties
to the contract are two experienced commercial entities.
By the testimony at trial and the purported stipulation of the parties, the Plaintiff
constructed bollards, concrete pads and extensions to concrete pads, and billed the new construction to
the Defendant as “repairs.” Under Wallace, if Plaintiff’s actions in making the “repairs” without
notifying the Defendant beforehand was consistent with the performance of the contract according to its
terms, the Plaintiff’s actions cannot be characterized as bad faith and Plaintiff cannot have breached its
duty of good faith and fair dealing. The contract gave the Plaintiff the option to elect to perform “any
maintenance or repairs. . .” as it saw fit. The contract placed no requirement on the Plaintiff to notify the
Defendant before undertaking any such “maintenance or repairs.” If Defendant had wished such a
requirement be placed on the Plaintiff, it could have negotiated that issue with the Plaintiff and insisted
that such a provision be included in the contract. No such provision requiring notice was included. It is
the opinion of this Court that the Trial Court did not err in refusing to bar recovery by virtue of the
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alleged breach by the Plaintiff of the implied covenant of good faith and fair dealing.
Defendant next argues that the Chancellor erred in “concluding that the construction
project was not a capital improvement.” The real issue before the Trial Court and this Court is whether
or not the work Plaintiff had performed constituted “maintenance and repairs” under the contract
between the parties. The Trial Court did find that some of the expenses were for improvements.
Kitzmiller-Murray’s invoice to Chattanooga Associates for the work done was for $79,950.65, of
which $9,233.92 was charged to a neighbor whose easement was also paved, leaving $70,716.73
owing from Chattanooga Associates to the contractor. Excluding the cost of concrete dolly pads
($21,045.69) and bollards ($790) from that the amount left $48,881.04 due by the tenants under the
Plaintiff’s theory. Defendant’s 79% of that amount would be $38,616.02. However the apparent
stipulation upon which the Master relied includes an additional $8,072.51 for “square yard of asphalt for
dolly pad repair” upon which there was no testimony and which was not included in any of the bills in the
record. Considering all of this, we are unable to verify by the record or our calculations that Cherokee
owes $46,249.47 rather than, at most, $38,616.02, for repairs.
Moreover, we find no evidence in the record that the apparent stipulation includes any
consideration of the cost of raising the pavement height so that it would be above the water level during
storms, as recommended by Charles Miller and apparently as actually done in the repaving, according to
the testimony of Bob Hellerstedt. As previously discussed, the original quote letter from Miller to
Katzenberg, which described his inspection of the parking lot, begins with the observation: “Dear Ms.
Katzenberg: As you know your warehouse is in a low area and has high ground water table. . . . During
the last substantial storm event the water level in the structure was the same as the ponds across the
railroad tracks. Therefore, even if we improve your on-site drainage there is no apparent outlet to drain
the water away from the site.” The letter discusses measures to improve drainage, add bollards, add
concrete pads, enlarge concrete pads and repair the areas that have failed, all of which was done. It is
uncontested on appeal that some of these measures were improvements, not repairs.
The determinative factor in this appeal is the contract between the parties itself. What
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was it that the Defendant contractually agreed to pay? The contract answers that question, and the
answer is that the Defendant agreed to pay its proportionate share of the costs incurred by the Plaintiff
for maintenance and repairs. Under Plaintiff’s interpretation of this contractual provision, it could have
had this parking lot construction work done the day after the contract was signed and Defendant, an
admittedly short term tenant, would have been responsible for its proportionate share of those expenses.
This Court is of the opinion that such was not the intention of the parties as reflected in the contract.
The contractual obligation to pay for repairs imposes an obligation merely to keep the
premises in as good a repair as they were when the lease was entered into. Taylor v. Gunn, 227
S.W.2d 52, 56 (Tenn. 1950). The definition of “improvement” has been discussed by this Court in
Memphis Light, Gas & Water Div. v. T. L. James & Co. , Tenn. App. No. 52, filed October 17,
1986, (no appl. perm app).
Black’s Law Dictionary, 5 th Ed. (1979) defines the term “improvement”
as follows:
Improvement: A valuable addition made to property (usually real
estate) or an amelioration in its condition, amounting to more than mere
repairs or replacement, costing labor or capital, and intended to enhance
its value, beauty or utility or to adapt it for new or further purposes.
Generally, buildings, but may also include any permanent structure or
other development, such as a street, sidewalks, sewers, utilities, etc.
[emphasis added]
This definition of “improvement has been adopted in its totality as
Section 1 of 14 Tenn. Juris., Improvements (1984).
Memphis Light, supra.
This Court has previously discussed improvements and repairs under the terms of a
lease contract which provided that the lessee pay for repairs:
Common sense dictates that maintenance, such as painting the structure
and resealing the parking lot adds to the physical life of the building, yet
without question these activities are no more than ordinary maintenance.
We are further of the opinion that replacement of damaged awnings as
opposed to the installation of new awnings falls within the purview of
maintenance. Such activities are nothing more than expenditures which
are required to keep the building in a state of good repair.
Brooks v. Networks of Chattanooga, Inc., 946 S.W.2d 321, 328 (Tenn. App. 1996).
Brooks does not support the Plaintiff’s position in this case. The controlling language in
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the lease in Brooks is considerably broader than in the case currently before us. Specifically, the lease in
Brooks required the tenant there to pay its pro rata share of the “operating costs” of maintaining the
common areas and building. The lease in Brooks defined “operating costs” as “. . .the total cost and
expense incurred in operating, maintaining, repairing and replacing the common areas and building in
which Leased Premises are located. . .” There is no corresponding language in the lease in the case now
before us that requires Defendant to be responsible for its pro rata share of “replacing” the area in
question. Additionally, the controlling language of the lease in Brooks was absolutely clear that it was
the parties’ intention that that lease be a “triple net” lease to the landlord during the term of the lease so
that the tenant was responsible to pay “. . .all costs, expenses and obligations of every kind relating to
the Leased Premises which may arise or become due during the term of this Lease. . .” [emphasis
added]. The lease in question before this Court in this appeal contains no such language.
In this case, the evidence in the record is insufficient to determine on appeal whether the
expenses apportioned to Cherokee under the lease were for repairs or for improvements or
replacements. Although the Master incorporated a purported stipulation in his findings, the stipulation
document itself is unclear. We cannot tell from the record before us which of the construction expenses
were necessary to put the premises in as good of repair as when the lease was entered into and which
were improvements or replacements which resulted in the premises being put in better condition than at
the time the lease was entered into by the parties.
“Even though [Appellant] has not questioned the Trial Court’s damage calculation on
appeal, we have the responsibility to apply the controlling law whether or not cited or relied upon by
either party.” McClain v. Kimbrough Constr. Co., 806 S.W.2d 194, 201 (Tenn. App. 1990)(perm.
app. denied). As in McClain, “while we favor the conservation of the judicial resources, we do not
have sufficient evidence to calculate” the cost of repairs vs. improvements/replacements in this case. Id
at 201.
We reverse the judgment of the Trial Court and remand the case to the Trial Court to
determine what amount of the construction expense was necessary to keep or place the premises in as
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good a condition as they were in when the lease was entered into by the parties. In keeping with the
parties’ contract and the Order of the Trial Court, 79% of the expenses determined to be repairs as
defined above shall be apportioned to Defendant.
In light of our holding above, the Chancellor’s award of a 15% late charge was in error.
Since some of the expenses charged to the Defendant by the Plaintiff were not proper under the lease as
repairs, the Defendant was justified in refusing to pay the bill within the time specified by the contract. A
landlord cannot trigger a late fee provision by sending an inflated bill which the tenant rightfully refuses to
pay, as such an attempt would be a violation of the implied covenant of good faith and fair dealing as
discussed earlier in this Opinion.
CONCLUSION
The judgment of the Trial Court is reversed and the case remanded to the Trial Court
for further proceedings consistent with this Opinion. Costs of this appeal are assessed to the Appellee.
_________________________________________
D. MICHAEL SWINEY, J.
CONCUR:
___________________________________
HERSCHEL P. FRANKS, J.
___________________________________
CHARLES D. SUSANO, JR., J.
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