Randall S. Patton v. Larry Massey ( 2010 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
March 10, 2010 Session
RANDALL S. PATTON, ET AL. v. LARRY MASSEY
Appeal from the Circuit Court for McMinn County
No. 27534 J. Michael Sharp, Judge
No. E2009-00408-COA-R3-CV FILED AUGUST 4, 2010
Lessor and Lessee entered into a Lease with an option to purchase. Lessee subsequently
assigned his interest in the Lease to a third party, who lived on the property throughout the
Lease’s primary term. The option to purchase the property was never completed and
Lessee’s assignee remained on the property after the expiration of the Lease. Lessor filed
a suit alleging breach of contract and sought damages from Lessee. After a bench trial, the
trial court found that the Lease was renewed by oral agreement; Lessee breached the
contractual obligations of the Lease; and Lessee was liable for damages. Lessee appeals.
We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Affirmed; Case Remanded
J OHN W. M CC LARTY, J., delivered the opinion of the Court, in which C HARLES D. S USANO,
J R., and D. M ICHAEL S WINEY, JJ., joined.
Mark E. Brown, Knoxville, Tennessee, for the appellant, Larry Massey.
Charles W. Pope, Jr., Athens, Tennessee, for the appellees, Randall S. Patton and Rebecca
Patton.
OPINION
I. FACTUAL BACKGROUND
Larry Massey (“Lessee”) entered into a residential lease with an option to purchase
real property located in Athens, Tennessee (“the Lease”) with Randall Patton (“Lessor”) and
Rebecca Patton. The property included six-tenths of an acre and a mobile home. The Lease
required monthly payments of $500 for 24 months beginning on January 1, 2005. Under the
Lease, Lessee assumed responsibility for the property taxes and the insurance premiums.
The purchase price for the property was $65,000. Two Hundred Dollars of each rental
payment was applied to the purchase price of the property. To complete the purchase of the
property, Lessee was required to tender a final balloon payment of $57,000 at the end of the
24-month term. Lessee never tendered the balloon payment and the purchase was never
completed.
The relevant provisions of the Lease provide, as follows:
7. Assignment and Subletting: Lessee may assign this agreement and sublet
any portion of the premises without prior written consent of the Lessor.
8. Maintenance, Repairs or Alterations: Lessee shall maintain the premises
in a clean and sanitary manner including all equipment, appliances, furniture
and furnishings therein, and shall surrender the same at termination thereof, in
as good condition as received, normal wear and tear accepted. Lessee shall be
responsible for damage caused by his/her negligence and that of his/her family,
or invitees, or guests. Lessee shall maintain any surrounding grounds,
including lawns and shrubbery, and keep the same free of rubbish and weeds,
if such grounds are part of the premises and are exclusively for the use of the
Lessee.
(emphasis in original). The Lease fails to address whether Lessee would be liable for any
damage to the property caused by an assignee or sublessee.
Soon after executing the Lease, Lessee assigned his interest in the Lease and entered
into a separate lease with an option to purchase with Patricia McCormick (“McCormick
Lease”). The McCormick Lease is nearly identical to the original Lease, but it contains
notable differences. First, the McCormick Lease included five acres and the mobile home.
Second, the McCormick Lease required monthly rental payments of $676 for 24 months and
a final balloon payment of $88,575 to complete the purchase of the property.
As the end of the Lease’s term approached, Lessee discussed an extension with
Lessor. Lessee requested a written extension, but Lessor refused to provide the extension
in writing. Lessee then informed Lessor that he would allow the Lease to expire by its own
terms. Lessee tendered the final rental payment on December 15, 2006. On January 2, 2007,
through counsel, Lessor sent Lessee a letter titled “Eviction Notice,” demanding that Lessee
surrender the property by February 10, 2007 (“Eviction Letter”).
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After sending the Eviction Letter, Lessor claims that he and Lessee orally agreed to
extend the Lease to permit time for Lessee and Ms. McCormick to obtain financing for the
purchase of the property. In spite of this agreement, Lessee never tendered an additional
rental payment or balloon payment and the purchase was never completed.
Ms. McCormick remained on the property until April 2007, nearly four months after
the expiration of the Lease. She did not make any payments to Lessee after December 31,
2006. Lessor eventually visited the property and informed Ms. McCormick that she would
have to vacate the property. Lessor followed up that visit with a letter to Ms. McCormick,
informing her that she needed to vacate the property and pay $4,625.67 for unpaid rent,
property taxes, and the insurance premium.
After failed attempts to collect from Ms. McCormick, Lessor filed a complaint against
Lessee seeking $22,000 in damages. After a bench trial, the trial court entered a judgment
in favor of Lessor for $7,349.14. The court found that an oral agreement between the parties
extended the Lease thereby making Lessee liable for the additional four months of rent, the
damage to the property, and the unpaid property taxes. A separate hearing occurred after the
trial to determine attorney’s fees. Thereafter, the trial court awarded attorney’s fees to Lessor
in the amount of $4,205.65. Lessee appeals the trial court’s judgement in favor of Lessor.
II. ISSUES
Lessee presents the following issues for review, which we restate:
1. Whether the trial court erred in holding that the Lease was renewed by oral
agreement.
2. Whether the trial court erred in holding that Lessee was liable for the
damage to the property.
3. Whether the trial court erred in holding that Lessee was liable for the
property taxes for the 2006 year.
4. Whether the trial court erred in awarding attorney’s fees to Lessor.
III. STANDARD OF REVIEW
The standard of review for a non-jury case is de novo upon the record. Wright v. City
of Knoxville, 898 S.W.2d 177, 181 (Tenn. 1995); Colonial Pipeline Co. v. Nashville &
Eastern R.R. Co., 253 S.W.3d 616, 620 (Tenn. Ct. App. 2007). There is a presumption of
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correctness as to the trial court’s factual findings, unless the preponderance of the evidence
is otherwise. See Tenn. R. App. P. 13(d); Bogan v. Bogan, 60 S.W.3d 721, 727 (Tenn. 2001).
For issues of law, the standard of review is de novo, with no presumption of correctness. S.
Constructors, Inc. v. Loudon County Bd. of Educ., 58 S.W.3d 706, 710 (Tenn. 2001).
IV. DISCUSSION
A.
Lessee contends that the trial court erred in finding that the Lease was renewed by oral
agreement. Based on that finding, the trial court awarded $2,000 in damages for unpaid rent
to Lessor. Tennessee law requires that, for the renewal or extension of a lease, all the
elements of contract formation must be present. See Frierson v. Grant, 134 S.W.2d 193, 195
(Tenn. Ct. App. 1939). The Tennessee Supreme Court explained the requirements for
contract formation in Higgins v. Oil Chem. & Atomic Workers Int’l Union:
The requirements for a valid contract are well-settled: [w]hile a contract may be
either express or implied, or written or oral, it must result from a meeting of the minds
of the parties in mutual assent to the terms, must be based on a sufficient
consideration, free from fraud or undue influence, not against public policy and
sufficiently definite to be enforceable.
811 S.W.2d 875, 879 (Tenn. 1991). If a lease allows for an option to extend the term, the
parties do not have to execute a new agreement. See Edwin B. Raskin Co. v. Doric Bldg.,
821 S.W.2d 948, 951 (Tenn. Ct. App. 1991). In Edwin B. Raskin Co., this court observed:
Where a lease gives a lessee a renewal at his election, and he elects to
continue, a present demise is created, which is subject to all the conditions and
covenants of his former lease, and it is not necessary that a new lease shall be
executed.
Id. (quoting Womble v. Walker, 181 S.W.2d 5, 8 (Tenn. 1944)). The Tennessee Supreme
Court recently addressed the issue of extending the term of a lease in Ellis v. Pauline S.
Sprouse Residuary Trust, 280 S.W.3d 806 (Tenn. 2009). In Ellis, the Court held:
[W]hen the lease does not contain a specific provision prescribing the time and
method for exercising the option to extend the lease, a lessee may effectively
exercise an option to extend a lease by remaining in possession of the property
after the expiration of the initial term of the lease and by paying the required
rent.
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See id. at 810-11(holding that the decision in Norton v. McCaskill, 12 S.W.3d 789 (Tenn.
2000), “when properly construed and applied, does not alter the holding in Carhart v. White
Mantel & Tile Co., 123 S.W. 747 (1909)”).
In the instant case, Lessee claims that there was no meeting of the minds regarding
the renewal of the Lease. At trial, Lessee explained that he requested a written extension of
the Lease, but Lessor refused to provide the extension in writing. Lessee informed Lessor
that he would allow the Lease to expire by its terms. Lessee testified:
And when he [Lessor] said he wouldn’t do it in writing, I told him that January
1st would be the end of it as far as between me and him and interest in this
property. Pat [Ms. McCormick] would still be there. If he wanted Pat to stay
there, he could work out his arrangements with her.
After tendering the rental payment in December 2006, Lessee failed to tender any additional
payments to Lessor even though Ms. McCormick remained on the property. Regarding the
renewal or extension of the Lease’s term, the Lease states:
2. Term: The term hereof shall commence on date of possession, January 01,
2005, and continue for a period of 24 months thereafter. (May be extended for
a period of 12 months if Lessor and Lessee mutually agree)1
(emphasis in original).
The trial court found that the parties orally agreed to extend the Lease to allow time
for Lessee and Ms. McCormick to obtain financing in order to exercise the option to
purchase. Under Tenn. R. App. P. 13(d), we will not overturn a trial court’s factual findings
unless the evidence in the record preponderates against them. See Berryhill v. Rhodes, 21
S.W.3d 188, 190 (Tenn. 2000). Issues involving the interpretation of the language in a
contract is a question of law, which we review de novo with no presumption of correctness.
See Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn. 1999).
At trial, Lessor testified that he agreed to extend the Lease for an additional two
months to permit time for Lessee to obtain a loan. Lessor testified that he agreed to extend
1
The McCormick Lease has the same language as the original Lease regarding a term of 24 months.
However, the McCormick Lease does not include any provision regarding a renewal or extension of the 24-
month term.
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the Lease after sending the Eviction Letter, dated January 2, 2007, to Lessee.2 Lessor’s claim
is supported by the fact that Ms. McCormick, the assignee, remained on the property for four
months after the expiration of the Lease. The only evidence to contradict Lessor’s claim that
the Lease was extended by oral agreement is Lessee’s testimony. Ms. McCormick did not
testify at trial, and this court, without any evidence, will not assume that an assignee
knowingly and in bad faith remained on the property after the Lease expired.
However, even if this court assumes that there was no oral agreement to extend the
Lease, as Lessee claims, it would be of no consequence due to the holdover tenancy by Ms.
McCormick. The Lease, in pertinent part, states:
13. Holding Over: Any holding over after the expiration of the term of this
[L]ease, with the consent of the Lessor, shall be construed as a month-to-
month tenancy in accordance with the term hereof, as applicable.
(emphasis in original). Even though Lessee assigned his interest in the property to Ms.
McCormick, he nonetheless remained liable for the obligations under the Lease due to privity
of contract with Lessor.
In the absence of a contractual restriction in the lease, a tenant can freely transfer his
or her interest in the lease. See Kroger Co. v. Chemical Sec. Co., 526 S.W.2d 468, 471
(Tenn. 1975). An assignment, unlike a sublease, “conveys the whole term [of the lease],
leaving no interest or reversionary interest in the assignor.” 17 T ENNESSEE J URISPRUDENCE,
Landlord and Tenant § 37 (2009). The original tenant who executed the lease with the
landlord is in both privity of contract and privity of estate with its landlord. See Griswold
v. Income Properties II, No. 01A01-9310-CH-00469, 1995 WL 256756, at *4 (Tenn. Ct.
App. M.S., May 4, 1995) (citations omitted). An assignment terminates the original tenant’s
privity of estate and right of possession, but the original tenant remains in privity of contract
with the landlord. See id. (citing Ernst v. Conditt, 390 S.W.2d 703, 708 (Tenn. Ct. App.
1965)). Because the original tenant remains in privity of contract, he or she is liable for the
contractual obligations of the lease. Griswold, 1995 WL 256756, at *4, n. 5.
As the result of an assignment, the tenant’s assignee becomes bound by privity of
estate, and the assignee must perform the “express covenants which run with the land.” First
2
Counsel for Lessor prepared the Eviction Letter that stated, as follows:
Please consider this letter your written notice that you vacate the premises and remove all
your belongings from the property by February 10, 2007. . . . It is the position of my client
that you have failed to comply with the tax provisions under the [L]ease.
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Am. Nat’l Bank of Nashville v. Chicken Sys. of Am., Inc., 616 S.W.2d 156, 158 (Tenn. Ct.
App. 1980); see also Stone v. Martin, 206 S.W.2d 388, 389 (Tenn. 1947). The assignee “has
the benefit and the burden of all covenants running with the land as long as he holds the
estate.” See First Am. Nat’l Bank of Nashville, 616 S.W.2d at 159 (emphasis added). On the
other hand, if an assignee personally assumes the obligation of the lease, then he or she also
becomes bound by privity of contract with the lessor. Id. at 161. By assuming the obligation
of a lease, an assignee stands in the place of the original tenant and takes on the burden of
the lease. Id. at 159 (explaining that “An assignee, unless he has personally assumed the
obligation, may absolve himself from further liability by an act which terminates his privity
of estate.”); see also 17 T ENNESSEE J URISPRUDENCE, Landlord and Tenant § 38 (2009).
Assumption only occurs when an assignee makes an express promise to perform the
covenants of the lease, which is a fact that is never presumed but “must always be proven.”
Id. at 161. However, mere acceptance of an assignment does not equate into an assumption.
Id.3
In the case at bar, Lessee conveyed the entire term of the Lease to Ms. McCormick
thereby creating an assignment of his interest in the property. Ms. McCormick then acquired
privity of estate with Lessor after taking possession of the property. From our review of the
record, it is unclear whether Ms. McCormick assumed the covenants of the Lease. Although
a copy of the McCormick Lease is provided in the record, it is an unsigned copy. Thus, we
cannot determine whether privity of contract existed between Ms. McCormick and Lessor
because the record does not indicate whether Ms. McCormick assumed the Lease.
Nevertheless, the assignment to Ms. McCormick did not affect the existing privity of contract
between Lessee and Lessor. See Ernst, 390 S.W.2d at 708. Therefore, if the Lease was not
extended by oral agreement, under the provisions of the Lease, any holdover beyond the
Lease’s term would result in a month-to-month tenancy. Due to the existing privity of
contract between Lessee and Lessor, Lessee remained responsible for that obligation and is
liable for the unpaid rental payments during the holdover tenancy of Ms. McCormick.
Privity of contract is also the reason why we reject Lessee’s claim concerning the
damage to the property during Ms. McCormick’s tenancy. Lessee asserts that the trial court
erred in finding him liable for the damage to the property because he assigned his interest in
the property to Ms. McCormick and the Lease does not specify that he would be liable for
any damage caused by an assignee.
While the Lease is silent on who assumes responsibility for an assignee’s damage to
3
“Before there is privity of contract between the assignee and the lessor, there must be an actual
assumption of the lease.” See First Am. Nat’l Bank of Nashville, 616 S.W.2d at 161.
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the property, the Lease does provide that Lessee would return the property “in as good
condition as received, normal wear and tear accepted” at the end of the Lease’s term. It is
undisputed that the property was in good repair at the time of executing the Lease.
There was lengthy testimony at trial about the damage to the property after Ms.
McCormick’s tenancy. Lessor testified that he found debris and trash in the backyard of the
property, and the mobile home reeked of a strong odor. James Morgan, a contractor, also
testified at trial. Lessor hired Mr. Morgan to repair the damage to the property. Mr. Morgan
testified that he replaced the floors, windows, and the rotted walls because of water damage.
Through his direct testimony, photographs of the damage to the property were introduced.
Mr. Morgan testified that the plywood underneath the floors and walls were urine soaked
requiring repair and the photographs corroborated the extensive damage to the mobile home.
In light of the above evidence, we conclude that Lessee failed to comply with the
holdover tenancy provision and the covenant to return the property in good repair as
evidenced by the damage to the property. Even though he did not cause the damage to the
property, his contractual obligations obligated him to return the property undamaged. The
trial court correctly determined that Lessee was liable for the unpaid rental payments and the
damage to the property and properly awarded damages to Lessor. Accordingly, we affirm.
B.
Lessee takes issue with the trial court’s award of $185 in unpaid property taxes for the
tax year of 2006. Lessee does not dispute that the Lease requires that he pay the property
taxes. Lessee argues that the last rental payment of $500 was more than enough to offset the
2006 property taxes because the Lease expired by its terms on December 31, 2006.
This assertion is without merit. The Lease required Lessee to tender separate
payments for rent and the property taxes. According to the payment receipts, Lessee failed
to tender any payment for the property taxes in 2006. As such, he breached one of the
Lease’s covenants. The trial court correctly determined that Lessee was liable for the unpaid
property taxes and we affirm.
C.
Lastly, Lessee challenges the trial court’s award of attorney’s fees to Lessor. Lessee
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does not dispute that the Lease permits the prevailing party to recover attorney’s fees,4 but
he asserts that Lessor is not the prevailing party if he partially prevails on this appeal. Lessee
asks this court to remand this case to the trial court for a determination of attorney’s fees if
he partially prevails on this appeal.
Tennessee follows the American Rule which provides that litigants must pay their own
attorney’s fees unless there is a statute or contract providing otherwise. Taylor v. Fezell, 158
S.W.3d 352, 359 (Tenn. 2005); State v. Brown & Williamson Tobacco Corp., 18 S.W.3d 186,
194 (Tenn. 2000); State ex rel. Orr v. Thomas, 585 S.W.2d 606, 607 (Tenn. 1979). In the
absence of such a fee-shifting statute, contract provision, or other recognized equitable
ground, courts may not compel a losing party to pay the winning party’s attorney’s fees.
Brown & Williamson Tobacco Corp., 18 S.W.3d at 194; Kultura, Inc. v. S. Leasing Corp.,
923 S.W.2d 536, 540 (Tenn. 1996).
Having concluded that the trial court correctly resolved the issues of this appeal in
favor of Lessor, a remand is not necessary. Lessor is the prevailing party. Pursuant to the
terms of the Lease, Lessor is entitled to reasonable attorney’s fees. As such, the trial court
properly awarded attorney’s fees to Lessor and we affirm.
V. CONCLUSION
The judgment of the trial court is affirmed in its entirety. Costs on appeal are taxed
against appellant, Larry Massey. This cause is remanded to the trial court for collection of
costs.
_________________________________
JOHN W. McCLARTY, JUDGE
4
The Lease provides:
10. Attorney Fees: The prevailing party shall be entitled to all cost incurred in connection with any
legal action brought by either party to enforce the terms hereof or relating to the demised premises,
including reasonable attorneys’ fees.
(emphasis in original).
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