Houston Humphreys LLC v. Houston Street Partners, LLC ( 2022 )

08/19/2022
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
March 2, 2022 Session
HOUSTON HUMPHREYS LLC v. HOUSTON STREET PARTNERS, LLC
ET AL.
Appeal from the Chancery Court for Davidson County
No. 20-0898-IV Russell T. Perkins, Chancellor
___________________________________
No. M2021-00235-COA-R3-CV
___________________________________
This appeal concerns the purchase and sale agreement for a 98,094-square-foot, multi-use
commercial development in Nashville, Tennessee, known as Houston Station. Before
marketing the property for sale, the defendant-seller discovered that approximately 100
square feet of the building encroached on neighboring property owned by CSX
Transportation, Inc. and sought a lease from CSX to cover the encroachment. But before it
could reach an agreement with CSX, the seller agreed to sell the property to the plaintiff-
buyer. The buyer deposited $3 million as earnest money, and the parties scheduled a
closing. Before closing, however, CSX demanded $550,000 per year for the encroachment.
The seller then informed the buyer that it could not meet its obligations under their
agreement. Meanwhile, the seller breached the agreement by executing two new leases
without the buyer’s approval. The buyer extended the closing several times to allow the
seller to cure its defaults, but the seller refused to terminate the new leases and could not
reach a mutually agreeable arrangement with CSX. The buyer then let the closing deadline
lapse and sued for, inter alia, reformation of the purchase agreement, specific performance,
and damages. The seller then moved for summary judgment and requested an award of the
earnest money on the theory that the buyer waived its objections by allowing the closing
deadline to lapse. The trial court granted the motion, reasoning that the buyer had
constructive notice of the encroachment and then breached the purchase agreement by
failing to buy the property. Accordingly, the court found the seller was entitled to the $3
million deposit as liquidated damages and an award of attorneys’ fees and expenses under
the agreement as the prevailing party. The buyer appeals. Following a thorough review, we
respectfully disagree that the buyer had constructive notice that the seller did not have good
and marketable title. We also disagree that the seller had a right to terminate the contract
and receive the earnest money. Thus, we reverse the trial court’s judgment and remand for
further proceedings consistent with this opinion.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed
in Part, Vacated in Part, and Remanded
FRANK G. CLEMENT JR., P.J., M.S., delivered the opinion of the Court, in which ANDY D.
BENNETT and W. NEAL MCBRAYER, JJ., joined.
Peter C. Sales and Edmund S. Sauer, Nashville, Tennessee, and Bradley J. Hamburger,
Dione Garlick, James P. Fogelman, and Daniel R. Adler, Los Angeles, California, for the
appellants Houston Humphreys, LLC.
Ryan T. Holt, Andrea J. Sinclair, Amy K. R. Mohan, Alice E. B. Haston, and Mark A.
Carver, Nashville, Tennessee, for the appellees, Houston Street Partners, LLC; Humphreys
Street Investments, LLC; and Gordon Gilbreath.
OPINION
FACTS AND PROCEDURAL BACKGROUND
I. BACKGROUND
In the early 1900s, a large factory (“the Houston Station Building”) was constructed
on a 1.53-acre, triangular piece of land (“the Houston Station Parcel”) at 434 Houston
Street in Nashville, Tennessee. Around the same time, a 13-foot wide, 0.18-acre strip of
the Houston Station Parcel was conveyed to the neighboring railway in exchange for the
railway’s agreement to build a side track. The conveyance was recorded in a 1903 Deed
(“the 1903 Deed”) that depicted the conveyed area as a darkened strip between the
remaining land and the railway’s preexisting, 50-foot right-of-way:
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One hundred years later, in 2005, Houston Street Partners, LLC (“Seller”),
purchased the Houston Station Parcel and Building. Seller then obtained a land survey (“the
2006 Survey”) that showed the parcel was 1.35 acres1 in size and revealed that the southeast
corner of the Houston Station Building encroached onto a “13′ USE EASEMENT” on the
railway’s property, which was now owned by CSX Transportation, Inc. (“CSX”):
Over the next several years, Seller transformed the Houston Station Building into a
mixed-use development and executed leases with several tenants, including one of
Nashville’s most popular restaurants, Bastion, whose lease included the corner of the
Building that encroached on CSX’s property (“the CSX Parcel”). Believing it had
permission to use the CSX Parcel, Seller allowed its tenants to use the strip of land as an
access road for deliveries, trash pickup, and employee parking.
In December 2018, CSX sent Seller a cease-and-desist letter demanding Houston
Station tenants stop using its property. Because the CSX Parcel was the only means of
access to the rear of the Houston Station Building, Seller’s Chief Partner, Gordon
Gilbreath, asked CSX for permission to use the Parcel for limited purposes. CSX responded
by asking Mr. Gilbreath to submit a land lease application to cover the requested uses and
the “~9 feet of the corner of the building . . . encroaching on CSX’s property.”
1
On page one we identified the acreage as being l.53 but here it is listed as 1.35. Although this
may appear to be a typographical error, it is not. The lot comprised 1.53 acres before the 1903 conveyance
to the railroad. Since that time, the acreage has been 1.35.
-3-
While Mr. Gilbreath was preparing the lease application, Seller engaged real estate
broker Chad Grout to sell the Houston Station Parcel and two nearby parking lots owned
by Humphreys Street Investments, LLC. Mr. Grout then notified real estate investment
firm Rubicon Equities (“Buyer”) that the properties were for sale.2 Mr. Grout provided
Buyer with a copy of the 2006 Survey and disclosed that Seller was negotiating a “parking
lease with CSX for the north side of the building.”
After some negotiation, Buyer and Seller executed a purchase and sale agreement
(“the Purchase Agreement”) in December 2019. The Purchase Agreement was structured
to provide Buyer with a 45-day inspection period, during which Seller would obtain and
provide Buyer with a title insurance commitment, and Buyer would obtain a new survey
of the properties. Seller represented that it had “good and marketable title” to the Houston
Station Parcel and disclosed that it was “negotiating with CSX railroad . . . regarding the
right . . . to use certain property located in the CSX right-of-way for access, parking, a
ramp, loading area, and barriers.”
After signing the Purchase Agreement, Buyer deposited $1.5 million in earnest
money, and Seller provided Buyer with a title commitment from Fidelity National Title
Insurance Company along with copies of all title documents referenced there. But none of
the materials referenced the 1903 Deed or the encroachment. Buyer then had a new survey
prepared based on the title materials that Seller provided. Because those materials did not
reference the 1903 Deed, the resulting survey depicted the Houston Station Parcel in its
pre-1903, 1.53-acre size and did not reveal the encroachment:
2
The plaintiff-appellant in this case, Houston Humphreys LLC, is Buyer’s successor in interest.
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Both Buyer and Seller received a copy of the survey in January 2020. A few weeks later,
the inspection period closed, and Buyer deposited another $1.5 million in earnest money.
The next month, Mr. Gilbreath received a proposed land lease from CSX for
$550,000 per year to use the CSX Parcel for, among other things, “the location and
maintenance of a portion of [Seller]’s building.” Mr. Gilbreath sent the lease and a copy of
the 1903 Deed to Buyer. In his email, Mr. Gilbreath acknowledged that the lease terms
were “way out of bounds” and suggested that the parties negotiate for a lower price. Buyer,
however, was more concerned that a portion of the Houston Station Building encroached
on CSX’s property—a fact that Buyer claimed it was unaware of until then. Buyer rejected
the idea of leasing the CSX Parcel at any price because it could not “allow . . . anyone else
to own the land underneath the building.” In response, Mr. Gilbreath admitted that he failed
“to recognize the scope and importance” of the encroachment. Mr. Gilbreath explained that
Seller had no issues with lenders or title insurance underwriters in the past, and he
presumed the lease would resolve any encroachment issues.
A few days later, Buyer sent Seller a “Notice of New Objection” pursuant to § 3.2(a)
of the Purchase Agreement. Section 3.2(a) gave Buyer the right to object to newly
discovered title defects before closing:
In the event that at any time following delivery of the Title Commitment or
Survey described above, but prior to Closing, any changes . . . occur in the
Title Commitment or Survey, in addition to other remedies permitted
pursuant to this Agreement, then Buyer, in Buyer’s sole discretion and
judgment, may: (a) accept the Property with such defects, or (b) give written
notice to Seller and the Title Company of Buyer’s disapproval of any such
matters (a “New Objection”). If Seller does not remove or cure such New
Objection prior to the date of Closing, Buyer may at Buyer’s election either
(i) extend the Closing date by up to thirty (30) days during which time Seller
shall correct the New Objection if caused by or through the action or inaction
of Seller, and if not then corrected, or [sic] (ii) exercise Buyer’s remedies
provided in Section 10.1 herein.
Buyer demanded Seller cure the encroachment by acquiring title to the CSX Parcel
and extended the closing to July 6, 2020.
Meanwhile, several Houston Station tenants decided not to renew their leases due
to pandemic-related declines in business. Losing tenants presented a challenge for Seller
because §§ 4.1 and 4.2(a) of the Purchase Agreement obligated Seller to operate Houston
Station in the ordinary course of business but prohibited Seller from entering “into any
New Lease . . . without the prior written approval of Buyer.” Seller identified several
potential new tenants but could not get Buyer’s approval before executing the leases.
Afraid of losing its opportunity to rent the vacant spaces, Seller executed two new leases
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in mid-June 2020. When Seller notified Buyer about the leases, it also informed Buyer that
“multiple closing conditions”—including “the encroachment issue with CSX”—would not
be “satisfied or resolved prior to closing.” In response, Buyer sent Seller a notice of default
and demanded that Seller terminate the new leases and acquire title to the CSX Parcel.
Predictably, the parties did not close on July 6, 2020. That same day, Buyer sent
Seller a “Notice of Closing Date Extension” pursuant to § 6.2 of the Purchase Agreement,
which gave Seller the right to extend the closing by 60 days if Seller could not meet the
closing conditions:
In the event any of the foregoing conditions is not satisfied at the time
the Closing is scheduled to take place, Buyer may (i) extend the Closing by
not more than sixty (60) days to allow Seller to cure such breach of a
Condition to Close, and/or (ii) in addition to any other remedy available to it
hereunder, terminate this Agreement by written notice to Seller whereupon
the Earnest Money shall be promptly refunded to Buyer . . . .
Buyer also reasserted its demands that Seller obtain title to the CSX Parcel and terminate
the new leases. Seller, however, refused to terminate the leases and informed Buyer that
the encroachment issue would not be cured even with the extended deadline.
Even so, on July 24, 2020, Seller made one last attempt to reach an agreement with
CSX by offering to purchase the CSX Parcel for $375,000. In its offer, Seller explained
that buying the land “would be the simplest solution to removing the cloud” on its title.
CSX, however, was uninterested in selling the property. After CSX declined its offer, Seller
informed Buyer a third time that it could not recertify the representations and warranties in
the Purchase Agreement because it did not have “good and marketable” title to the Houston
Station Parcel.
On September 4, 2020, the rescheduled closing date, Buyer notified Seller that it
had three days to cure the defaults before Buyer pursued its remedies under § 10.1 of the
Purchase Agreement. Section 10.1 gave Buyer the right to obtain specific performance or
terminate the Purchase Agreement if Seller failed to sell the properties:
10.1. Seller’s Failure to Close/Buyer’s Remedies. If Seller fails or is
unable to sell the Property to Buyer, then, unless Seller cures such failure
within three (3) business days after Buyer provides written notice thereof,
Buyer, as its sole and exclusive remedies, may either: (i) obtain specific
performance of this Agreement, or (ii) terminate this Agreement without
further liability to the Seller, provided that Buyer shall have the right to
receive reimbursement of Buyer’s actual out-of-pocket costs and expenses in
conjunction with this Agreement, not to exceed One Hundred Thousand and
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No/100 Dollars ($100,000.00), in which event the Earnest Money shall also
be distributed to Buyer.
In response, Seller sent Buyer a notice claiming that Buyer was in default for failing
to purchase the properties and giving Buyer three days to cure the default before Seller
exercised its rights under § 10.2 of the Purchase Agreement. Section 10.2 gave Seller the
right to terminate the Agreement and keep the earnest money as liquidated damages if
Buyer defaulted by failing to purchase the properties:
10.2. Buyer’s Failure to Close/Seller’s Remedies. If Buyer fails to
purchase the Property and such failure constituted a default under this
Agreement, then, unless Buyer cures such failure within three (3) business
days after Seller gives it written notice thereof, Seller, as its sole and
exclusive remedy, may terminate this Agreement and receive the Earnest
Money as full and agreed upon liquidated damages.
Shortly after that, Buyer commenced this action by filing a complaint for
reformation of the Purchase Agreement, specific performance, and damages against Seller,
Mr. Gilbreath, and John Does 1–3 (collectively, “Defendants”). After Buyer filed its
complaint, Seller notified Buyer that it was terminating the Purchase Agreement and
retaining the $3 million in earnest money as liquidated damages.
II. TRIAL COURT PROCEEDINGS
Buyer asserted six claims against Defendants, only four of which are at issue on
appeal: (1) reformation of the Purchase Agreement based on fraud; (2) specific
performance of the reformed Purchase Agreement; (3) breach of contract; and (4)
fraudulent concealment.3 In short, Buyer alleged that Defendants fraudulently induced
Buyer to enter the Purchase Agreement by misrepresenting and concealing the actual size
of the Houston Station Parcel and misrepresenting the quality of its title, that it had good
and marketable title. Thus, Buyer asserted that it was entitled to an abatement of the
purchase price or an award of damages to reflect the smaller parcel size and the legal risks
associated with the encroachment. Buyer also sought an award of damages to compensate
for the allegedly inferior leases that Seller entered into without Buyer’s permission.
Defendants responded by moving for summary judgment on all claims. Defendants
argued that they were entitled to summary judgment on Buyer’s fraud claims because the
3
Buyer also asserted a claim against Seller for injunctive relief and a claim against Gordon
Gilbreath and John Does 1–3 for violation of the Tennessee Consumer Protection Act (“TCPA”). The trial
court granted summary judgment to Seller on these claims, and Buyer has not appealed that part of the
court’s judgment.
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actual boundary line and encroachment were disclosed on the 2006 Survey that Mr. Grout
provided to Buyer in October 2019. Defendants also asserted that Buyer had constructive
notice of the boundary line because the 1903 Deed was a public record. Thus, Defendants
asserted that Buyer was not entitled to an abatement of the purchase price or damages. As
for Buyer’s claims for breach of contract and specific performance, Seller asserted that it
was entitled to summary judgment because the Purchase Agreement terminated after Buyer
failed to close. Defendants also asked the court to release the earnest money to Seller and
award reasonable attorneys’ fees. Buyer opposed the motion, arguing that it had no
constructive notice and that there were multiple triable issues preventing summary
judgment.
Following a hearing, the trial court granted Defendants’ motion for summary
judgment, awarded the earnest money to Seller as liquidated damages, and awarded
$350,000 in attorneys’ fees and costs to Seller as the prevailing party. The court found that
Buyer had constructive notice of the actual boundary line, the encroachment, and the 1903
Deed, and that Seller “was capable of conveying good and marketable” title to “the
Property as defined in the Agreement,” being “the land that ends where CSX’s property
begins.” For these reasons, the court concluded that Defendants were entitled to summary
judgment on Buyer’s claims for reformation and fraudulent concealment. The court also
found that Seller was “ready, willing and able to convey the Property, as defined in the
Agreement” and that Seller’s termination of the Purchase Agreement was valid. Thus, the
court reasoned that Buyer could not suffer damages from Seller’s alleged breaches of the
contract, and it found Seller was entitled to the earnest money as liquidated damages.
Because Defendants were the prevailing party, the court awarded them $350,000 in
attorneys’ fees and costs under the Purchase Agreement.
This appeal followed.
ISSUES
Buyer raises four issues on appeal:
1. Did the trial court err in concluding, as a matter of law, that Seller had
not actually agreed to sell all of Houston Station to Buyer and therefore
was entitled to summary judgment on the Buyer’s contract claims?
2. Given that Tennessee courts have long held that constructive notice is not
a defense against fraud, did the trial court err in granting summary
judgment on Buyer’s fraud-based claims on the theory that Buyer had
constructive notice of the true boundary line of the Houston Street parcel?
3. Is there a genuine issue of material fact precluding summary judgment on
Buyer’s fraud-based claims regarding whether Seller disclosed the true
boundary line when it made available an outdated, inaccurate survey
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completed in 2006 that, according to unrebutted expert testimony, no
reasonable buyer would rely on?
4. Did the trial court err in awarding Buyer’s deposit to Seller, even though
Seller had (a) asserted no claim to the deposit and (b) by its own
admission, not satisfied the closing conditions in the parties’ agreement
that are a prerequisite for the Buyer’s forfeiture of the deposit?
Seller states the issues on appeal as follows:
1. Are Buyer’s new arguments on appeal waived?
2. Did the trial court correctly rule that Buyer’s fraud claims fail as a matter
of law and that Buyer is not entitled to reformation of the contract?
2. Did the trial court correctly grant summary judgment on Buyer’s breach-
of-contract claims?
3. Are Buyer’s objections to the trial court’s award of earnest money
waived, meritless, or both?
4. Did the trial court correctly award attorneys’ fees to Seller as the
prevailing party, and is Seller entitled to its attorneys’ fees on appeal?
STANDARD OF REVIEW
We review a trial court’s grant of summary judgment de novo without a presumption
of correctness. See Rye v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235, 250
(Tenn. 2015). Accordingly, this court must make a fresh determination of whether the
requirements of Tennessee Rule of Civil Procedure 56 have been satisfied. Id. In so doing,
we consider the evidence in the light most favorable to the nonmoving party and draw all
reasonable inferences in that party’s favor. Godfrey v. Ruiz, 90 S.W.3d 692, 695 (Tenn.
2002).
Courts should grant summary judgment when “the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.” Tenn. R. Civ. P. 56.04. When the party moving for summary
judgment does not bear the burden of proof at trial, as is the case here, it “may satisfy its
burden of production either (1) by affirmatively negating an essential element of the
nonmoving party’s claim or (2) by demonstrating that the nonmoving party’s evidence at
the summary judgment stage is insufficient to establish the nonmoving party’s claim or
defense.” Rye, 477 S.W.3d at 264.
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When a party moves for summary judgment and supports the motion as required by
Tennessee Rule of Civil Procedure 56, the nonmoving party may not rest on the allegations
or denials in its pleadings. Id. at 265. Instead, the nonmoving party must respond with
specific facts showing there is a genuine issue for trial. Id. A fact is material “if it must be
decided in order to resolve the substantive claim or defense at which the motion is
directed.” Byrd v. Hall, 847 S.W.2d 208, 215 (Tenn. 1993). A “genuine issue” exists if “a
reasonable jury could legitimately resolve that fact in favor of one side or the other.” Id.ANALYSIS
I. CLAIMS FOR REFORMATION AND FRAUDULENT CONCEALMENT
Buyer contends that the trial court erred in granting summary judgment on its claims
sounding in fraud because there is a genuine issue of material fact as to whether the 1903
Deed and the 2006 Survey constituted actual or constructive notice of Seller not having the
right to use all the land under the Houston Station Building.4 We agree.
To establish fraudulent concealment, a plaintiff must prove that “the defendant ha[d]
a duty to disclose a known fact, the defendant faile[d] to disclose that fact, and the plaintiff
reasonably relie[d] on the resulting misrepresentation, which cause[d] injury.” Archer,
2020 WL 6075705, at *6 (citations omitted). “[A] seller of real property has a duty to
disclose ‘a fact of controlling importance in determining the desirability and value of that
[real property].’” Homestead Grp., LLC v. Bank of Tennessee, 307 S.W.3d 746, 752 (Tenn.
Ct. App. 2009) (quoting Simmons v. Evans, 206 S.W.2d 295, 296 (Tenn. 1947)). That said,
there is no duty to disclose a fact “where ordinary diligence would have revealed the
undisclosed fact.” Odom v. Oliver, 310 S.W.3d 344, 350 (Tenn. Ct. App. 2009) (citing
Simmons, 206 S.W.2d at 296; Lonning v. Jim Walter Homes, Inc., 725 S.W.2d 682, 684
(Tenn. Ct. App. 1986)).
4
Buyer also contends that the doctrine of constructive notice is not a defense to fraud under the
circumstances of this case. Defendants argue that Buyer waived this argument by not raising it in the trial
court. We agree. “Constructive notice” refers to “information or knowledge of a fact imputed by law to a
person . . . because he could have discovered the fact by proper diligence.” Hawks v. City of Westmoreland,
960 S.W.2d 10, 15 (Tenn. 1997) (quoting Kirby v. Macon Cnty., 892 S.W.2d 403, 409 (Tenn. 1994)).
Generally, plaintiffs “cannot recover on a claim of misrepresentation or concealment when the plaintiff has
constructive knowledge of the material fact at issue.” Archer v. The Home Team, Inc., No. M2019-01898-
COA-R3-CV, 2020 WL 6075705, at *7 (Tenn. Ct. App. Oct. 15, 2020) (citing Winstead v. First Tennessee
Bank N.A., Memphis, 709 S.W.2d 627, 633 (Tenn. Ct. App. 1986)). There are exceptions to this rule, such
as when the defendant’s representations were “calculated to lull the suspicions of a careful man into a
complete reliance” or when the defendant prevented or hindered the plaintiff’s efforts to investigate and
discover the truth. Id. (quoting 92 C.J.S. Vendor and Purchaser § 68). In the trial court, Buyer disputed
whether the 1903 Deed was discoverable through proper diligence, but Buyer did not argue that any
exception to the general rule applied. Thus, the issue is waived.
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Generally, whether a fact would have been discoverable in the exercise of ordinary
diligence is a question of fact. See id. at 352 (finding a factual dispute regarding whether
the buyers could have discovered a defect in the exercise of ordinary diligence). Publicly
recorded information, however, is “discoverable through ordinary diligence” as a matter of
law. See Archer, 2020 WL 6075705, at *7 (citing PNC Multifamily Cap. Inst’l Fund XXVI
Ltd. P’ship v. Bluff City Cmty. Dev. Corp., 387 S.W.3d 525, 550 (Tenn. Ct. App. 2012);
Trent v. Mountain Com. Bank, 606 S.W.3d 258, 265 (Tenn. 2020)); see also Tenn. Code
Ann. § 66-26-102 (providing that all recorded instruments such as deeds and judgments
“shall be notice to all the world from the time they are noted for registration, . . . and shall
take effect from such time.”).
It is undisputed that the 1903 Deed was registered with the Davidson County
Register’s Office. It is also undisputed that Seller gave Buyer a copy of the 2006 Survey,
which referenced the 1903 Deed by book and page number. The 1903 Deed shows that a
13-foot strip of the Houston Station Parcel bordering the railway’s right-of-way was
conveyed to CSX’s predecessor. Thus, as a matter of law, Buyer had constructive notice
of the facts contained in the 1903 Deed.
As such, we agree with the trial court that Buyer had constructive notice that CSX
owned a strip of land between the Houston Station Parcel and the railway. However, the
1903 Deed did not provide Buyer with constructive notice that the Houston Station
Building encroached on CSX’s property because the 1903 Deed did not show or describe
the Building’s location.
To establish that Buyer had notice of the encroachment, Defendants relied on the
2006 Survey. It was undisputed that Mr. Grout gave Buyer a copy of the Survey in October
2019 and that the Survey showed the southeast corner of the Houston Station Building
encroaching on the CSX Parcel. Thus, we agree with the trial court’s conclusion that Buyer
had constructive notice that the Houston Station Building encroached on the CSX Parcel.
That said, it was also undisputed that the 2006 Survey showed a 13-foot “use
easement” covering the encroachment and that Defendants themselves mistakenly believed
they had a right to use the easement for at least 12 years.5 For this reason, viewing these
5
Defendants contend that Buyer waived any argument concerning the use easement because
“Buyer neither pled in its complaint nor argued to the trial court that it was defrauded by an alleged false
disclosure of a use easement.” This argument is misplaced. As Defendants correctly point out, Buyer does
not contend that it was defrauded by Defendants’ failure to disclose the use easement; Buyer contends that
it was defrauded by Defendants’ failure to disclose the unauthorized encroachment of the Houston Station
Building on the CSX Parcel. The use easement rebuts Defendants’ contention that the 2006 Survey gave
Buyer actual or constructive notice of this fact.
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facts in a light most favorable to Buyer, we disagree with the trial court’s conclusion that
it is undisputed Buyer had actual or constructive notice of the encroachment being
unauthorized. To the contrary, we find that it is disputed whether Buyer had sufficient
notice that the encroachment was unauthorized by CSX. We also find this disputed fact
material because the unauthorized encroachment of a building on adjoining property
exposes the landowner to liability. See Cross v. McCurry, 859 S.W.2d 349, 354 (Tenn. Ct.
App. 1993) (holding that landowner was entitled to damages when neighboring building
encroached on property). Thus, “[s]uch an encroachment makes the title of the purchaser
unmarketable because the adjoining owner may compel the removal of the encroachment
or sue for damages caused by it.” 77 Am. Jur. 2d Vendor and Purchaser § 164; see also
Rogers v. Roop, 92 S.W.2d 423, 429 (Tenn. Ct. App. 1935) (defining “merchantable” or
“marketable” title as “title free from serious defects, evidenced by public record and in no
way dependent upon parol evidence, and that nothing appears casting a cloud upon it from
which litigation can arise”).
Buyer seeks reformation of the Purchase Agreement and damages for Defendants’
alleged misrepresentation of the Houston Station Parcel’s size and the quality of its title,
i.e., that Seller had “good and marketable” title to the property. In particular, Buyer sought
an abatement of the purchase price to account for the legal risks associated with the
unauthorized encroachment. It was undisputed that Seller knew the encroachment was an
issue with CSX by early 2019 when CSX demanded Seller submit a land lease application
to cover various uses, including the approximately “9 feet of the corner of the
building . . . encroaching on CSX’s property.” Yet six months later, Seller negotiated a
contract to sell the Houston Station Parcel based on representations that it owned “good
and marketable title.” Seller later admitted that it could not live up to this representation
due to the encroachment. Neither the 2006 Survey nor the 1903 Deed establishes that Buyer
knew or should have known that the encroachment clouded the title to the Houston Station
Parcel.
For these reasons, Defendants are not entitled to judgment as a matter of law on
Buyer’s claims for reformation and fraudulent concealment.
II. CONTRACT-BASED CLAIMS
Buyer contends that the trial court erred when it granted summary judgment to Seller
on its contract-based claims for several reasons. As stated in its brief,
The Seller admitted, among other things, that it could not live up to its end
of the bargain—specifically, that it could not convey all 1.53 acres of
Houston Station because CSX owned [a portion] of it. It had also entered into
dubious leases without the Buyer’s approval, in violation of the parties’
agreement. The Seller breached the agreement in other ways, too, including
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by not disclosing CSX’s threat of a trespass suit. All of these contractual
breaches were either admitted or are beyond dispute, which means that the
Seller was in no position to close on the deal. The trial court nonetheless
declared that the Buyer had defaulted by not going through with the purchase
and that the agreement had been terminated. . . . That conclusion is entirely
divorced from the evidentiary record.
Buyer also contends that Seller had no right to terminate the contract or keep the
earnest money because Buyer’s failure to close was not a default under the Purchase
Agreement. Buyer asserts that its obligation to close was conditioned on, among other
things, Seller not being in default and Seller’s representations being true, accurate, and
complete. Because Seller admitted to breaching § 4.2 of the Agreement, Buyer contends
that Seller did not meet the closing conditions and thus Buyer had no obligation to close.6
For its part, Seller argues that Buyer’s failure to close was a default because Buyer
opted to proceed to closing rather than terminating the Purchase Agreement after Seller
admitted that it could not meet the closing conditions.
Resolving these issues requires interpretation of the Purchase Agreement. We
review a trial court’s interpretation of a contract de novo without a presumption of
correctness. See State ex rel. Pope v. U.S. Fire Ins. Co., 145 S.W.3d 529, 533 (Tenn. 2004).
The trial court based its decision to grant summary judgment on Seller’s purported
termination of the Purchase Agreement under § 10.2. This section gave Seller the right to
terminate the contract and retain the earnest money as liquidated damages if Buyer failed
to close and its failure to close constituted a default:
10.2. Buyer’s Failure to Close/Seller’s Remedies. If Buyer fails to
purchase the Property and such failure constituted a default under this
Agreement, then, unless Buyer cures such failure within three (3) business
days after Seller gives it written notice thereof, Seller, as its sole and
6
Buyer also contends that summary judgment and the award of damages was not appropriate
because “there was at least a triable question whether the Seller had breached the agreement by failing to
disclose a threat of legal action by CSX” and because Seller’s request for an award of the earnest money
was procedurally improper. Defendants argue that Buyer waived these arguments by not making them in
the trial court. We agree. Arguments not first raised in the trial court are waived on appeal. Barnes v. Barnes,
193 S.W.3d 495, 501 (Tenn. 2006). Additionally, “[a] skeletal argument that is really nothing more than an
assertion will not properly preserve a claim . . . .” Newcomb v. Kohler Co., 222 S.W.3d 368, 400 (Tenn. Ct.
App. 2006) (citing United States v. Dunkel, 927 F.2d 942, 956 (7th Cir. 1991)). Buyer did not oppose
Seller’s claim for liquidated damages on procedural grounds in the trial court. Further, Buyer’s complaint
did not allege that Seller breached its obligation to disclose threatened litigation, and Buyer made only a
passing reference to this allegation in its oral argument to the trial court.
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exclusive remedy, may terminate this Agreement and receive the Earnest
Money as full and agreed upon liquidated damages.
At the same time, as Buyer correctly points out, § 6.2 conditioned Buyer’s
obligation to close on, among other things, “Seller not being in default under [the]
Agreement” and “all of the representations and warranties made by Seller . . . being true,
accurate and complete.” But Seller relies on additional language in § 6.2 that gives Buyer
the right to extend the closing or terminate the contract:
In the event any of the foregoing conditions is not satisfied at the time
the Closing is scheduled to take place, Buyer may (i) extend the Closing by
not more than sixty (60) days to allow Seller to cure such breach of a
Condition to Close, and/or (ii) in addition to any other remedy available to it
hereunder, terminate this Agreement by written notice to Seller whereupon
the Earnest Money shall be promptly refunded to Buyer and . . . then Seller
shall reimburse Buyer for its actual and documented out-of-pocket costs and
expenses not to exceed $100,000.
Buyer alleges that Seller breached the Purchase Agreement by “failing to own good
and marketable fee simple title to the Property.” The trial court found it undisputed that
“Seller[] owned good and marketable fee simple title to the Property as defined in the
Agreement,” which the court construed as “land that ends where the CSX Parcel begins.”
Buyer contends this interpretation is incorrect because Seller agreed to sell “the full
property and building, including the portion owned by CSX.”7
We agree with the trial court’s conclusion that Seller owned fee simple title to “the
Property” as defined in the Purchase Agreement. The Purchase Agreement, through a series
of defined terms, identifies “the Property” as including the “Houston Station Parcel,” which
the Agreement defines as an “approximately 1.53-acre parcel of land in Nashville,
Davidson County, Tennessee with an address of 434 Houston Street and a Tax Parcel
Identification of 10503019800 as more particularly described on Exhibit A-1.” Exhibit A-
1 “more particularly” describes the Houston Station Parcel as follows:
Land in Davidson County, Tennessee, being a triangular shape lot in South
Nashville, fronting on the west side of the N.C. & St. L. Railroad, and
being bounded on its westerly side by Brown Street, and on its southerly side
by Houston Street; said lot has a frontage on Brown Street of 280 feet, and
7
In the alternative, Buyer contends that the Purchase Agreement is ambiguous as to what the parties
agreed to buy and sell. Seller argues that Buyer waived this argument by failing to raise it in the trial court.
We agree. Buyer did not argue that the Purchase Agreement was ambiguous in the trial court and, as such,
waived the issue on appeal. See Barnes, 193 S.W.3d at 501.
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on Houston Street of 512 feet; said lot being a part of the Humphrey Houston
and Martin Plan of lots as registered in Book 36, page 117, in the Register’s
Office for Davidson County, Tennessee.
. . . .
Being the same property conveyed to Houston Street Partners, LLC, a
Tennessee limited liability company, by Thomas T. Pennington and Jeffrey
A. Kay, Co-Trustees of the Rich Trust by Special Warranty Deed dated
November 23, 2005, of record at Instrument No. 20051128-0143055,
Register’s Office for Davidson County, Tennessee.
(Emphasis added). Thus, the Purchase Agreement obligated Seller to convey what it
received in 2005: the triangular parcel of land bounded by Brown Street, Houston Street,
and the railroad. It is undisputed that Seller still owned all the property it received in 2005.
While we agree that Seller owned fee simple title to “the Property,” we respectfully
disagree with the trial court’s conclusion that Seller owned “good and marketable fee
simple title to the Property.” As discussed, the encroachment of a building onto
neighboring land “makes the title of the purchaser unmarketable because the adjoining
owner may compel the removal of the encroachment or sue for damages caused by it.” 77
Am. Jur. 2d Vendor and Purchaser § 164; see also Rogers, 92 S.W.2d at 429. It is
undisputed that the Houston Station Building’s encroachment onto CSX’s property created
a cloud on Seller’s title.
Thus, it is undisputed that Seller could not satisfy the closing conditions at the time
of the September 4, 2020 closing date. Seller told Buyer that it could not recertify its
representations and warranties because it did not have “good and marketable” title to the
Houston Station Parcel. Additionally, Seller does not dispute that it breached the Purchase
Agreement by executing two new leases without obtaining Buyer’s consent. Nevertheless,
Seller contends that Buyer’s only options were to extend the closing date, terminate the
contract, or proceed with the closing. Because Buyer did not extend the closing date or
terminate the contract, Seller argues that Buyer breached its obligation to close. We
disagree.
Section 6.2 expressly conditioned Buyer’s obligation to close on Seller meeting the
closing conditions. We do not interpret Buyer’s right to extend closing or terminate the
Agreement as abrogating this. See Teter v. Republic Parking Sys., Inc., 181 S.W.3d 330,
342 (Tenn. 2005) (recognizing that the provisions in a contract should be interpreted
harmoniously with each other when possible). Simply put, if Seller did not meet the closing
conditions by the closing date, Buyer was not obligated to close. In addition, Buyer had the
right to extend the closing, terminate the Agreement, or exercise “any other remedy
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available” under the Purchase Agreement. Relevant here, § 10.1 gave Buyer the right to
seek specific performance.
Thus, when Seller had not satisfied the closing conditions by the September 4, 2020
closing date, Buyer had no obligation to close, and it had the right to seek specific
performance, which it did. Because Buyer had no obligation to close, Buyer’s failure to
close was not a default. Therefore, Seller had no right to terminate the Purchase Agreement
and receive the $3 million deposit as liquidated damages.
For these reasons, Seller is not entitled to judgment as a matter of law on Buyer’s
contract-based claims. This includes the trial court’s ruling that the Purchase Agreement
terminated upon Buyer’s failure to close on September 4, 2020, and its ruling that Seller
was entitled to retain the earnest money as liquidated damages. Accordingly, both of the
above rulings are vacated.
The above ruling also requires that we vacate the ruling that Buyer could not
establish damages based on Seller’s admitted breach of § 4.2 of the Purchase Agreement
by entering into two new leases after the expiration of the inspection period without
Buyer’s approval.
III. ATTORNEYS’ FEES
Buyer contends this court should also vacate the award of attorneys’ fees and costs
because Defendants are no longer the “prevailing parties.” Section 11.13 of the Purchase
Agreement entitles the “prevailing party” in any action related to the Purchase Agreement
to an award of reasonable costs, expenses, and fees. Because we have reversed the trial
court’s grant of summary judgment in favor of Seller on the breach of contract claims,
Seller is not the prevailing party. Therefore, Seller is not entitled to attorneys’ fees and
expenses at this stage. Accordingly, we vacate this portion of the trial court’s judgment.8
IN CONCLUSION
Based on the above, we reverse the trial court’s judgment concerning Buyer’s claims
for reformation and fraudulent concealment, as well as Buyer’s contract-based claims, and
we vacate its award concerning the earnest money deposit and attorneys’ fees and expenses
and remand for further proceedings consistent with this opinion. Costs of appeal are
8
Because Buyer did not appeal the summary judgment on its TCPA claim, Defendants contend
that the award of attorney’s fees should be affirmed in part under Tennessee Code Annotated § 47-18-
109(e)(2). We decline to do so. The trial court did not address Buyer’s request under § 47-18-109(e)(2),
and Buyer’s decision to abandon its TCPA claim on appeal does not automatically entitle Defendants to an
award under that statute.
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assessed against the appellees, Houston Street Partners, LLC; Humphreys Street
Investments, LLC; and Gordon Gilbreath, jointly and severally.
________________________________
FRANK G. CLEMENT JR., P.J., M.S.
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