Theresa S. Biancheri, Trustee of the Mercer Family Trust v. Charles M. Johnson, Jr. AND Charles M. Johnson, Jr. v. Ida Louise Cromwell ( 2009 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
January 8, 2009 Session
THERESA S. BIANCHERI, TRUSTEE OF THE MERCER FAMILY
TRUST v. CHARLES M. JOHNSON, JR. ET AL.
Appeal from the Chancery Court for Davidson County
No. 05-2068-I Claudia Bonnyman, Chancellor
No. M2008-00599-COA-R3-CV - Filed March 18, 2009
AND
CHARLES M. JOHNSON, JR. ET AL. v. IDA LOUISE CROMWELL ET AL.
Appeal from the Chancery Court for Davidson County
No. 05-2068-I, 06-394-I Claudia Bonnyman, Chancellor
No. M2007-02861-COA-R3-CV - Filed March 18, 2009
________________________
The matters at issue arise from a contract for the sale of a residence and the buyers’ refusal to close
on the purchase of the residence. The seller, the trustee of a family trust, and the buyers entered into
a contract for sale of a residence. Prior to closing, the buyers discovered that elaborate audio-visual
equipment, that was material to them, had been removed by the husband of the Trustee. The buyers
considered this a material breach and refused to close; as a result, the seller filed suit against the
buyers for breach of contract. The buyers counter-claimed alleging the seller breached the contract
first and that the seller, through its real estate agent, had made fraudulent misrepresentations to
induce the buyers to sign the contract, specifically that the audio-visual equipment was part of the
sale and that the previous resident, who died inside the home after being shot by his wife in the
bedroom closet, had not died in the home. The buyers also filed a separate action against the seller’s
real estate agent alleging fraudulent misrepresentation, fraud, promissory fraud, fraud in the
inducement, negligent misrepresentation, and violations of the Tennessee Consumer Protection Act.
The buyers’ claims against the seller were summarily dismissed upon findings by the trial court that
the contract was valid and that the buyers breached the contract by failing to close. The real estate
agent was summarily dismissed upon a finding that the buyers could not establish actionable
misrepresentations. The buyers then filed a motion for summary judgment on the issue of damages
for breach of contract, contending the contract afforded the seller the option of electing liquidated
damages, in lieu of compensatory damages, in the amount of the earnest money and that the seller
had made that election by retaining the earnest money. The trial court summarily ruled that the seller
had elected to receive liquidated damages as its exclusive remedy. The buyers appeal the summary
dismissal of their claims against the seller and the seller’s real estate agent. The seller appeals the
summary ruling that it elected to recover liquidated damages in lieu of compensatory damages. We
have determined the real estate agent was not entitled to summary judgment as material facts are in
dispute concerning whether the agent made material misrepresentations to induce the buyers to enter
into the contract. We have determined the seller was not entitled to summary judgment on the issue
of liability for the buyers’ alleged breach of the contract because material facts are in dispute
concerning whether the buyers are entitled to rescission of the contract based on the agent’s alleged
misrepresentations and whether the seller breached the contract prior to the buyers’ alleged breach
by removing components from the integrated television system, which the buyers contend was a
material part of the contract. Due to our ruling that the seller was not entitled to summary judgment
on the issue of liability, the seller is not entitled to damages for breach of contract, and it is
premature to determine which party may be entitled to damages and in what amount. Accordingly,
the award of liquidated damages in favor of the seller is reversed.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Reversed and Remanded
FRANK G. CLEMENT , JR., J., delivered the opinion of the court, in which ANDY D. BENNETT and
RICHARD H. DINKINS, JJ., joined.
Robert M. Burns and Timothy P. Harlan, Nashville, Tennessee, for Theresa S. Biancheri, Trustee
of The Mercer Family Trust.
William D. Leader, Jr. and Taylor C. Sutherland, Nashville, Tennessee, for Charles M. Johnson, Jr.
and Vikki H. Johnson.
Mary Byrd Ferrara and Teresa Reall Ricks, Nashville, Tennessee, for Ida Louise Cromwell and
Shirley Zeitlin & Company.
OPINION
This opinion addresses the issues raised in two separate but related civil actions, each of
which arise from the same set of facts. At issue are the parties’ respective rights and responsibilities
arising from a contract for the sale of a residence in Davidson County and discussions leading up to
that contract. The residence for sale belonged to the late Joseph Mercer, a Nashville attorney, who
died in the residence as a result of a gunshot wound.
Pursuant to his Last Will and Testament, the residence and Mr. Mercer’s personal property
were bequeathed to the Mercer Family Trust, the sole beneficiary of which is Mr. Mercer’s minor
son from a previous marriage. Theresa Biancheri, the mother of his son, is Trustee of the Mercer
Family Trust. As Trustee, Ms. Biancheri listed the Mercer residence for sale with Ida Louise
Cromwell, a real estate agent with the firm of Shirley Zeitlin & Company Realtors.
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In June 2005, Charles and Vikki Johnson were in the market hoping to purchase a
contemporary style residence. The Johnsons’ real estate agent, Joy Flynn, informed them of the
listing of the Mercer residence and the Johnsons visited the residence for the first time on June 4,
2005. Present at this initial visit were Charles Johnson, Vikki Johnson, Taylor Johnson, the
Johnson’s 27-year-old son, Joy Flynn, and Ms. Cromwell. Mr. Johnson, an architect, became
intrigued by a fully integrated television system located in the downstairs living room. The Johnsons
claim that while they were in the downstairs living room where the system was located that Ms.
Cromwell made a gesture with her hand and stated “all this is included.”1
During this first visit on June 4, the Johnsons noticed that all the furniture remained and that
fresh food was in the refrigerator, yet all clothing and personal belongings had been removed. As
a result, the Johnson became curious about the previous owners of the home, however, they did not
question the agent during the first visit. Taylor Johnson, the buyers’ son, later told his parents that
Ms. Cromwell told him the previous owner died of natural causes and that her client had instructed
her not to go into further detail.2
Following the first visit, Taylor Johnson and Joy Flynn made independent inquiries regarding
Mr. Mercer’s death, and both of them discovered articles on the internet indicating that he had been
shot and killed in the residence. When the Johnsons were informed of this fact they lost interest in
the home, as Mrs. Johnson did not want to purchase a residence where someone had died a violent
death. After Ms. Cromwell learned that the Johnsons had lost interest, she reinitiated contact with
them. The Johnsons state that Ms. Cromwell then informed them that based upon conversations she
had with Mr. Mercer’s neighbors, Mr. Mercer did not die in the residence but that he died in the
ambulance, either while outside the residence or while being transported to the hospital.3 Upon
learning that Mr. Mercer did not die in the residence, the Johnsons’ interest in the Mercer residence
was renewed.
On June 30, 2005, the Johnsons and the Trustee entered into the contract for the sale of the
Mercer residence for the purchase price of $1,025,000.4 Paragraph 5 of the contract identified the
items to be included in the sale:
Unless excepted, this sale includes all fixtures, built-in appliances, permanent-type
improvements, and all other articles of tangible property which are attached to the
premises so that the removal thereof would leave the premises in an incomplete
condition. Included are, and not by way of limitation and to the extent that same are
1
Ms. Cromwell denies making this statement.
2
Ms. Cromwell denies making this statement.
3
Ms. Cromwell denies making this statement.
4
On July 13, 2005, the Johnsons delivered a check of $20,000 as earnest money, which was deposited in a trust
account managed by Shirley Zeitlin & Company Realtors.
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now on or within the premises: wall-to-wall carpeting, full window treatments
(including hardware), light fixtures, permanently attached mirrors, central vacuum
and attachments, permanently installed fireplace screens, gas fireplace logs, interior
and exterior hardware, window air conditioning units, attic and ceiling fans,
permanently installed basketball goals, permanently installed outdoor cooking grills,
fences, all landscaping, mailboxes, television antennas and rotors, awnings,
automatic garage door opening equipment and remote controls, swimming pool
equipment, and attached fire and security alarm systems.
Additional items to be included were written into the contract, wherein it was stated: “[a]ll
TV’s remain, all pool equipment and central vac equipment shall remain.” Only one item was
expressly and specifically excluded from the sale, the “portable TV in child’s bedroom.”
The closing was scheduled for July 29, 2005. In the interim, the Johnsons were making plans
for substantial renovations to the residence. They repeatedly visited the home to ascertain changes
they wanted, and to allow contractors to give their opinions pertaining to the renovation and provide
estimates of the cost of the planned renovations and the time to complete the work. During these
visits, Mr. Johnson and his son examined the integrated television system in order to assure it was
properly functioning, which it was.
On July 28, 2005, the Johnsons visited the residence to perform a final walkthrough before
the closing, which was scheduled for the following day. Upon visiting the house, Mr. Johnson
noticed that substantial electronic components previously connected to the integrated television
system in the downstairs living room had been removed, and that without these components the
television monitor that remained did not work.5 Ms. Flynn immediately contacted Ms. Cromwell
to advise that the electronic components had been removed and that the Johnsons insisted the
components be returned. What transpired thereafter is very much in dispute. The Johnsons insist
that they requested the immediate return and reinstallation of the system, that Ms. Cromwell initially
told Ms. Flynn that the items would be returned, but later Ms. Cromwell informed them that the
Biancheris (the Trustee and her husband) had no intention of returning the equipment as it was of
“sentimental value” to Mr. Mercer’s son. The Johnsons state that Ms. Cromwell then offered to
replace the equipment with lower quality equipment, however, the Johnsons refused this substitution
claiming that the removal of the equipment was a breach of the contract; therefore, they would not
close. The closing scheduled for July 29, 2005 did not occur.
On August 12, 2005, Ms. Biancheri, as Trustee on behalf of the Mercer Family Trust, filed
suit against the Johnsons for breach of contract. On October 14, 2005, the Johnsons answered and
filed a counter-claim against the Trustee. In an Amended Counter-Claim filed in March, the
Johnsons alleged that the Trustee breached the contract and sought rescission of the contract based
upon negligent misrepresentation. The Johnsons alleged that Ms. Cromwell, as an agent of the
5
As Mr. Johnson explained it, the television that remained was merely a monitor that required the other
components to function as a television.
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Trustee, made material misrepresentations regarding the inclusion of the audio-visual equipment and
where Mr. Mercer died. The Trustee filed an Answer to the Counter-Claim denying all claims and
any liability to the Johnsons.
Thereafter, the Johnsons filed a separate action against Ms. Cromwell and Zeitlin Realtors,
asserting claims for fraud, promissory fraud, fraud in the inducement, negligent misrepresentation,
and violations of the Tennessee Consumer Protection Act, all of which arise out of the same set of
facts as the suit with the Trust.6 These claims were based upon the same misrepresentations which
formed a basis for their claims against the Trust. Ms. Cromwell and Zeitlin Realtors filed an Answer
denying the claims and any liability to the Johnsons.
Following discovery, the Trust filed a Motion for Summary Judgment on the issue of liability
due to the Johnsons’ breach of contract. The Johnsons opposed the motion contending the Trustee
was in breach of contract and that the contract was fraudulently induced. The trial court granted the
Trust’s motion for summary judgment finding that a valid contract existed, that the Trustee’s
removal of the audio-visual components from the television system did not constitute a breach of
the contract, and that the Johnsons breached the contract by failing to close. The trial court also
found that the Johnsons’ counter-claims asserted against the Trustee were rendered moot by the
summary judgment order.
Ms. Cromwell and Zeitlin Realtors filed a Motion for Summary Judgment claiming that the
Johnsons could not establish actionable misrepresentation. The Johnsons opposed the motion
contending that misrepresentations by Ms. Cromwell fraudulently induced the Johnsons to enter into
the contract. The trial court granted summary judgment in favor of Ms. Cromwell and Zeitlin
Realtors finding that the audio-visual equipment at issue was not an “integrated” system but were
separate components, and that the equipment was not included in the contract. The trial court also
found that there were no exceptions in the contract, nor conditions in the contract, pertaining to the
location of Mr. Mercer’s death, and that the Johnsons were on notice concerning the circumstances
of his death and failed to perform a reasonable investigation before entering into the contract.
Ultimately, the court concluded that the Johnsons’ failure to purchase the property was a breach that
“was not caused by, or the result of negligent misrepresentation or fraudulent inducement by the
defendants Cromwell or Zeitlin”; therefore, Cromwell and Zeitlin Realtors were entitled to judgment
as a matter of law.
Following the entry of summary judgment in favor of the Trustee on the issue of liability in
the breach of contract action, the Johnsons filed a motion for summary judgment stating that the
Trustee had elected to receive the $20,000 in earnest money as liquidated damages as an exclusive
6
The claims against Cromwell and Zeitlin were initially asserted in the first action but those claims were
dismissed; whereupon, the Johnsons filed a separate action. Although the two actions remain separate, we elected to
address all of the issues in this opinion.
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remedy in lieu of compensatory damages.7 The trial court granted the Johnsons’ motion for
summary judgment on the issue of damages finding that the Trustee had elected to receive the
earnest money as liquidated damages as her exclusive remedy.
The Johnsons and the Trustee filed separate appeals. The Johnsons contend the trial court
erred by summarily dismissing all of their claims against Cromwell and Zeitlin Realtors and that it
erred by granting the Trustee summary judgment on the issue of the Johnsons’ liability for breach
of contract. For her issue, the Trustee appeals the ruling that she elected to receive liquidated
damages as her exclusive remedy.
SUMMARY JUDGMENT STANDARD
Summary judgments do not enjoy a presumption of correctness on appeal. BellSouth Adver.
& Publ’g Co. v. Johnson, 100 S.W.3d 202, 205 (Tenn. 2003). This court must make a fresh
determination that the requirements of Tenn. R. Civ. P. 56 have been satisfied. Hunter v. Brown, 955
S.W.2d 49, 50-51 (Tenn. 1997). We consider the evidence in the light most favorable to the
non-moving party and resolve all inferences in that party’s favor. Godfrey v. Ruiz, 90 S.W.3d 692,
695 (Tenn. 2002).
The standard for summary judgment in Tennessee was recently clarified by our Supreme
Court in the cases of Martin v. Norfolk S. Ry. Co., 271 S.W.3d 76 (Tenn. 2008), and Hannan v. Alltel
Publ’g Co., 270 S.W.3d 1 (Tenn. 2008). In Martin, the Court set out the summary judgment
standard as follows:
The moving party is entitled to summary judgment only if the “pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits . . . 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;
accord Penley v. Honda Motor Co., 31 S.W.3d 181, 183 (Tenn. 2000). The moving
party has the ultimate burden of persuading the court that there are no genuine issues
of material fact and that the moving party is entitled to judgment as a matter of law.
Byrd v. Hall, 847 S.W.2d 208, 215 (Tenn. 1993). Accordingly, a properly supported
motion for summary judgment must show that there are no genuine issues of material
fact and that the moving party is entitled to judgment as a matter of law. See Staples
v. CBL & Assocs., Inc., 15 S.W.3d 83, 88 (Tenn. 2000); McCarley v. W. Quality
Food Serv., 960 S.W.2d 585, 588 (Tenn. 1998). If the moving party fails to make this
showing, then “the non-movant’s burden to produce either supporting affidavits or
discovery materials is not triggered and the motion for summary judgment fails.”
McCarley, 960 S.W.2d at 588; accord Staples, 15 S.W.3d at 88.
7
Paragraph 16 of the real estate contract stated “[i]f Buyer breaches the contract, all damages resulting therefrom
to Seller and to Listing Broker, including reasonable attorney’s fees, costs, and the commissions hereinafter specified,
shall be paid by Buyer. Seller, however, may elect to retain the earnest money as liquidated damages...”
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The moving party may make the required showing and therefore shift the burden of
production to the nonmoving party by either: (1) affirmatively negating an essential
element of the nonmoving party’s claim; or (2) showing that the nonmoving party
cannot prove an essential element of the claim at trial. Hannan v. Alltel Publ’g Co.,
270 S.W.3d 1, 5 (Tenn. 2008); see also McCarley, 960 S.W.2d at 588; Byrd, 847
S.W.2d at 215 n.5. Both methods require something more than an assertion that the
nonmoving party has no evidence. Byrd, 847 S.W.2d at 215. Similarly, the
presentation of evidence that raises doubts about the nonmoving party’s ability to
prove his or her claim is also insufficient. McCarley, 960 S.W.2d at 588. The moving
party must either produce evidence or refer to evidence previously submitted by the
nonmoving party that negates an essential element of the nonmoving party’s claim
or shows that the nonmoving party cannot prove an essential element of the claim at
trial. Hannan, 270 S.W.3d at 5. We have held that to negate an essential element of
the claim, the moving party must point to evidence that tends to disprove an essential
factual claim made by the nonmoving party. See Blair v. W. Town Mall, 130 S.W.3d
761, 768 (Tenn. 2004). If the moving party is unable to make the required showing,
then its motion for summary judgment will fail. Byrd, 847 S.W.2d at 215.
If the moving party makes a properly supported motion, then the nonmoving party
is required to produce evidence of specific facts establishing that genuine issues of
material fact exist. McCarley, 960 S.W.2d at 588; Byrd, 847 S.W.2d at 215. The
nonmoving party may satisfy its burden of production by:
(1) pointing to evidence establishing material factual disputes that
were over-looked or ignored by the moving party; (2) rehabilitating
the evidence attacked by the moving party; (3) producing additional
evidence establishing the existence of a genuine issue for trial; or (4)
submitting an affidavit explaining the necessity for further discovery
pursuant to Tenn. R. Civ. P., Rule 56.06.
McCarley, 960 S.W.2d at 588; accord Byrd, 847 S.W.2d at 215 n.6. The nonmoving
party’s evidence must be accepted as true, and any doubts concerning the existence
of a genuine issue of material fact shall be resolved in favor of the nonmoving party.
McCarley, 960 S.W.2d at 588. “A disputed fact is material if it must be decided in
order to resolve the substantive claim or defense at which the motion is directed.”
Byrd, 847 S.W.2d at 215. A disputed fact presents a genuine issue if “a reasonable
jury could legitimately resolve that fact in favor of one side or the other.” Id.
Martin, 271 S.W.3d at 83-84.
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ANALYSIS
CLAIMS AGAINST CROMWELL AND ZEITLIN REALTORS
We first address the trial court’s grant of summary judgment to Ms. Cromwell and Zeitlin
Realtors. The trial court summarily dismissed the claims of fraud, promissory fraud, fraud in the
inducement, negligent misrepresentation, and violations of the Tennessee Consumer Protection Act.
The Johnsons’ claims were based on two alleged misrepresentations by Ms. Cromwell, which the
Johnsons contend were made to induce them to sign the contract to purchase the Mercer residence.
The first misrepresentation allegedly occurred after Ms. Cromwell learned that the Johnsons
had decided not to purchase the Mercer residence because they understood that Joseph Mercer had
died in the home. According to the Johnsons, once Ms. Cromwell learned of this, she informed them
that Joseph Mercer did not die inside the residence but that he died in the ambulance. Ms. Johnson
insists this was very important to her because she would not have agreed to purchase the residence
if he had died inside the home. The other alleged misrepresentation pertained to the integrated
television system. The Johnsons testified that Ms. Cromwell represented that the entire integrated
television system was part of the sale. Mr. Johnson testified that this was important to him, as he
was enamored with the integrated system. The Johnsons state that they relied upon these
representations, which were made fraudulently or negligently, when entering into the contract to
purchase the residence.
In their motion for summary judgment, Ms. Cromwell and Zeitlin Realtors asserted that the
Johnsons could not establish actionable misrepresentation, that there were no genuine issues of
material fact, and, therefore, they were entitled to summary judgment as a matter of law. The trial
court agreed and summarily dismissed all claims against Ms. Cromwell and Zeitlin Realtors.
As the moving parties on the summary judgment motion, Ms. Cromwell and Zeitlin Realtors
had the burden to either negate an essential element of the Johnsons’ claim or establish that the
Johnsons could not prove an essential element of their claim at trial. Martin, 271 S.W.3d. at 83
(citing Hannan, 270 S.W.3d at 5; McCarley, 960 S.W.2d at 588; Byrd, 847 S.W.2d at 215 n.5).
Therefore, Ms. Cromwell and Zeitlin Realtors were required to shift the burden of production to the
Johnsons by either affirmatively negating an essential element of each claim or showing the
Johnsons cannot prove an essential element at trial. Id. (citing Hannan, 270 S.W.3d at 9; McCarley,
960 S.W.2d at 588). We have determined they failed to do either.
FRAUDULENT AND NEGLIGENT MISREPRESENTATION
To sustain a cause of action for fraudulent misrepresentation, the plaintiff must show that:
1) the defendant made a representation of an existing or past fact; 2) the representation was false
when made; 3) the representation was in regard to a material fact; 4) the false representation was
made either knowingly or without belief in its truth or recklessly; 5) plaintiff reasonably relied on
the misrepresented material fact, and 6) plaintiff suffered damages as a result of the
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misrepresentation. Devorak v. Patterson, 907 S.W.2d 815, 819 (Tenn. Ct. App. 1995) (quoting
Metro. Gov’t of Nashville, Davidson Co. v. McKinney, 852 S.W.2d 233, 237 (Tenn. Ct. App. 1992)).
To sustain a cause of action for negligent misrepresentation, the plaintiff must establish by
a preponderance of the evidence that the defendant supplied information to the plaintiff; the
information was false; the defendant did not exercise reasonable care in obtaining or communicating
the information; and the plaintiff justifiably relied on the information. Strange v. Peterson, No.
W1999-00489-COA-R3-CV, 2001 WL 29461, at *2 (Tenn. Ct. App. Jan. 11, 2001) (citing
Merriman v. Smith, 599 S.W.2d 548, 556-57 (Tenn. Ct. App. 1979)). Negligent misrepresentation
occurs when a defendant, acting in the course of her business, profession, or employment, or in a
transaction in which she has pecuniary interest, supplies faulty information meant to guide another
in their business transactions; the defendant fails to exercise reasonable care in obtaining or
communicating information; and the plaintiff justifiably relies upon the information provided by the
defendant. Id. (citing Robinson v. Omer, 952 S.W.2d 423 (Tenn. 1997) (citing Restatement (Second)
of Torts § 552)).
Ms. Cromwell and Zeitlin Realtors contend the Johnsons could not establish justifiable
reliance, which is an essential element for both negligent misrepresentation and fraudulent
misrepresentation.8 Although Ms. Cromwell denies making the alleged representations, and the
defendants insist there are no disputed material facts regarding where Joseph Mercer died or the
inclusion of all or some of the integrated television system in the sale, assuming arguendo there is
a dispute of a material fact, the defendants contend the undisputed facts demonstrate that the
Johnsons did not reasonably rely on the alleged misrepresentations and the Johnsons were not
damaged by the alleged misrepresentations.
Whether a plaintiff’s reliance on an alleged misrepresentation is reasonable is generally a
question of fact, and thus, is generally not appropriate for summary judgment. City State Bank v.
Dean Witter Reynolds, 948 S.W.2d 729, 737-38 (Tenn. Ct. App. 1996) (citing Nichols v. A. B.
Colemans, Inc., 652 S.W.2d 907 (Tenn. App. 1983); Marine Midland Bank, N.A. v. G.M.A.C., No.
03 A01-9502-CV-00060, 1995 WL 417047 (Tenn. App. July 17, 1995)). Nevertheless, the
reasonableness of the Johnsons’ reliance on Ms. Cromwell’s representations must amount to a
genuine issue. See Annaco, Inc. v. Corbin, No. 02A01-9804-CH-00111, 1998 WL 929637, at *4
(Tenn. Ct. App. Dec. 31, 1998) (citing Byrd, 847 S.W.2d at 215) (“[A]s with other questions of fact,
the reasonableness of reliance must amount to a genuine issue in order to defeat summary
judgment.”). Disputed material facts do not create a genuine issue unless a reasonable jury could
legitimately resolve that fact in favor of either party. Id. (citing Byrd, 847 S.W.2d at 215).
Factors relevant to a determination of the reasonableness of a plaintiff's reliance on a
misrepresentation include the following: (1) the plaintiff’s business expertise and sophistication; (2)
the existence of longstanding business or personal relationships between the parties; (3) the
8
The Johnsons’ claims for fraud, fraud in the inducement, promissory fraud, as well as their claim under the
Tennessee Consumer Protection Act are dependent upon an intentional misstatement, or unfair or deceptive acts.
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availability of the relevant information; (4) the existence of a fiduciary relationship; (5) the
concealment of the fraud; and (6) the opportunity to discover the fraud. Id. (citing City State Bank,
948 S.W.2d at 737). “Generally, a party dealing on equal terms with another is not justified in
relying upon representations where the means of knowledge are readily within its reach.” Id. (citing
Solomon v. First American Nat’l Bank, 774 S.W.2d 935, 943 (Tenn. Ct. App. 1989)).
Mr. Johnson stated that they relied upon Ms. Cromwell’s representations, which relieved
them of their concerns regarding where Mr. Mercer died. Mr. Johnson also stated that they had more
faith in Ms. Cromwell’s representations regarding the location of Mr. Mercer’s death than newspaper
reports. Ms. Cromwell denies making such statements and argues that the Johnsons were
unreasonable in their reliance, insisting they had the duty to do additional research to ascertain where
Mr. Mercer died. The record reveals that Mr. Johnson contacted a friend, who was an attorney, in
an attempt to discover additional information regarding Mercer’s death, but his inquiries were
fruitless. The record also reveals that as the negotiations for the purchase of the residence ensued,
the police investigation of Mr. Mercer’s death was on-going; therefore, the police would not provide
information concerning their investigation. This fact is corroborated by the Trustee, Ms. Biancheri,
who stated in her deposition that the police did not provide her with any information regarding the
shooting. Accordingly, the Johnsons did not have any other readily available means of obtaining
information regarding Mr. Mercer’s death.
As this court stated in Hamilton v. Galbraith in 1932:
“If a buyer undertakes to investigate and determine the entire matter for himself, and
is afforded a full and fair opportunity therefor, and in fact does make such
investigation, and is permitted to make it as full and complete as he chooses, and he
accepts the property after such investigation, the authorities are practically unanimous
that he cannot be heard thereafter to assert that he relied upon the representations of
the adverse party,” but “if the buyer, instead of investigating as fully as he might,
made only a partial investigation, and relied in part upon such investigation and in
part upon the representations of the adverse party, and was deceived by such
representations to his injury, he may maintain an action for such deceit.”
Hamilton v. Galbraith, 15 Tenn. App. 158, 174 (Tenn. Ct. App. 1932) (quoting Meland v.
Youngberg, 124 Minn. 446, 145 N.W. 167, Anno. Cas., 1915-B, 775, 779).
As for the integrated television system, Ms. Cromwell contends the equipment was not to be
included in the sale, that she did not make the statements alleged by the Johnsons, and that there is
nothing in the record to indicate the Johnsons reasonably relied upon the alleged statements. The
Johnsons dispute these facts, stating that Ms. Cromwell stated unequivocally that “all this is
included,” referencing the audio-visual components, which were needed for the integrated television
system to function. The real estate contract the parties signed expressly stated “[a]ll T.V.s to
remain,” with the only exclusion being “the television within the child’s bedroom.” Mr. Johnson
testified that the integrated television system was a significant reason for his interest in the home and
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that he relied upon Ms. Cromwell’s statement, which he asserts is corroborated by the above
language in the contract. For these reasons, the Johnsons insist their reliance on Ms. Cromwell’s
statement concerning the integrated television system was reasonable.
Based upon the foregoing facts and legal principles, we have determined that a factual
question amounting to a genuine issue exists concerning whether Ms. Cromwell made the
representations at issue and whether the Johnsons’ reliance on the alleged misrepresentations was
justifiable or reasonable. See Annaco,1998 WL 929637, at *4 (citing Byrd, 847 S.W.2d at 215).
Therefore, Ms. Cromwell and Zeitlin Realtors failed to either affirmatively negate an essential
element of the Johnsons’ claim or demonstrate that the Johnsons could not prove at trial an essential
element of their claim for fraudulent misrepresentation or negligent misrepresentation.9
As for the issue of damages, Ms. Cromwell also contended that the Johnsons did not incur
damages as a consequence of the alleged misrepresentations. We have determined that a finder of
fact could conclude that the Johnsons were damaged as a result of being induced to enter into a
contract to purchase a residence that Ms. Johnson insists she cannot live in if Mr. Mercer died in the
residence instead of the ambulance. Further, we have determined that a finder of fact could conclude
that the Johnsons were damaged as a result of being induced to enter into the contract with the
reasonable belief the sophisticated and apparently expensive integrated television system was part
of the sale.
We, therefore, reverse the summary dismissal of the Johnsons’ claims of fraudulent
misrepresentation and negligent misrepresentation.
THE JOHNSONS’ OTHER CLAIMS AGAINST CROMWELL AND ZEITLIN REALTORS
The trial court also summarily dismissed the Johnsons’ claims for fraud, fraud in the
inducement, promissory fraud, and their claim under the Tennessee Consumer Protection Act, which
are dependent upon an intentional misstatement or unfair or deceptive acts. The claims for fraud,
fraud in the inducement, promissory fraud, as well as the claim under the Tennessee Consumer
Protection Act are partly dependent upon the disputed fact concerning whether Cromwell made an
intentional misrepresentation, or otherwise engaged in unfair or deceptive acts. We have determined
that a finder of fact could conclude that Ms. Cromwell made misrepresentations concerning where
Joseph Mercer died and whether all of the integrated television system was included in the sale.
9
W e also reject the assertion by the defendants Cromwell and Zeitlin Realtors that the Parol Evidence Rule bars
introduction of Ms. Cromwell’s alleged statements. “Parol evidence is generally inadmissable to contradict, vary, or alter
the terms of a written contract where the written instrument is valid, complete, and unambiguous.” Butler v. Butler, No.
W 2007-01257-COA-R3-CV, 2008 W L 5396019, at *6 (Tenn. Ct. App. Dec. 23, 2008) (citing Airline Constr., Inc. v.
Barr, 807 S.W .2d 247, 259 (Tenn. Ct. App. 1990)). Tennessee law has long recognized several exceptions to the parol
evidence rule including allegations of fraud, Id. (citing Hines v. Wilcox, 33 S.W . 914, 915 (Tenn. 1896)), and the rule
does not apply to claims of fraudulent misrepresentation in inducement of a contract. Id. (citing Brungard v. Caprice
Records, Inc., 608 S.W .2d 585, 588 (Tenn. Ct. App. 1980); Lipford v. First Family Fin. Servs., Inc., No.
W 2003-01208-COA-R3-CV, 2004 W L 948645, at *4 (Tenn. Ct. App. Apr. 29, 2004)) (emphasis added).
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Therefore, Ms. Cromwell and Zeitlin Realtors are not entitled to summary judgment on claims
dependent upon this disputed fact.
THE TRUSTEE ’S BREACH OF CONTRACT ACTION AGAINST THE JOHNSONS
We will now address whether the trial court erred in granting summary judgment in favor of
the Trustee on the issue of liability upon the finding the Johnsons breached the contract by refusing
to close on the sale.
The Trustee, as the moving party, bears the burden of proof at trial; therefore, the Trustee was
required to demonstrate she was entitled to summary judgment as a matter of law. As our Supreme
Court explained in Hannan:
[A] plaintiff who files a motion for partial summary judgment on an element of his
or her claim shifts the burden by alleging undisputed facts that show the existence of
that element and entitle the plaintiff to summary judgment as a matter of law.
Similarly, a defendant asserting an affirmative defense, such as laches, shifts the
burden of production by alleging undisputed facts that show the existence of the
affirmative defense.
270 S.W.3d at 9 n.6. A claim for breach of contract requires “(1) the existence of an enforceable
contract, (2) nonperformance amounting to a breach of the contract, and (3) damages caused by the
breach of the contract.” C & W Asset Acquisition, LLC v. Oggs, 230 S.W.3d 671, 676-77 (Tenn. Ct.
App. 2007) (citing ARC LifeMed, Inc., v. AMC-Tennessee, Inc., 183 S.W.3d 1, 26 (Tenn. Ct. App.
2005)).
The undisputed facts in the record demonstrate that the Johnsons and the Trustee entered into
a contract, that the closing was to occur on July 29, 2005, and that the Johnsons refused to appear
at the closing as required by the real estate contract. With these facts established, the Trustee carried
her burden of demonstrating the elements required to support her breach of contract claim. As a
consequence, the burden of production then shifted to the Johnsons to demonstrate a genuine dispute
as to a material fact which would render summary judgment inappropriate. See Martin, 271 S.W.3d
at 84 (citing McCarley, 960 S.W.2d at 588; Byrd, 847 S.W.2d at 215).
The Johnsons contend they are not liable for breach of contract on two grounds. First, they
contend the Trustee’s agent, Ms. Cromwell, induced them to enter into the contract by making
fraudulent or negligent misrepresentations. If the Johnsons have created a dispute of fact regarding
either alleged misrepresentation, the Trustee is not entitled to summary judgment on her breach of
contract claim.
If the Johnsons can establish that the Trustee or her agent made a material misrepresentation
that induced the Johnsons to enter into the contract, that fact “precludes a finding of mutual assent”
and as a result, the contract is voidable by the Johnsons. See Scruggs, No. 03A01-9209-CH-00358,
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1993 WL 93362, at *4 (Tenn. Ct. App. March 31, 1993). In order for a contract to be rescinded due
to misrepresentation, it must be established that “(1) there is an assertion that is not in accord with
facts, (2) the assertion must be either fraudulent or material, (3) the assertion must be relied upon
by the recipient in manifesting assent, and (4) the reliance of the recipient must be justified.”
Scruggs, 1993 WL 93362, at *4 (citing Restatement (Second) of Contracts § 159 introductory note,
p. 425 and § 164 (1981); E. Allan Farnsworth, Contracts, § 4.10 (1990)). As we noted earlier,
determining whether the plaintiffs’ reliance on alleged misstatements is reasonable is generally a
question of fact and, therefore, is inappropriate for summary judgment. City State Bank, 948 S.W.2d
at 737-38 (citing Nichols, 652 S.W.2d 907; Marine Midland Bank,1995 WL 417047 (Tenn. App.
July 17, 1995)).
The Johnsons assert that misrepresentations by Ms. Cromwell, the Trustee’s agent, warrant
rescission of the contract. As we discussed earlier, there is a genuine issue as to whether Ms.
Cromwell made a fraudulent or negligent misrepresentation concerning where Mr. Mercer died and
whether all of the integrated television system was included in the contract. Depending upon
whether there was a misrepresentation and whether a misrepresentation was material to the Johnsons
when entering into the contract, either alleged misrepresentation may be grounds for rescission of
the contract.
Alternatively, the Johnsons contend the Trustee breached the contract prior to their refusal
to close by removing substantial and material components of the integrated television system,
thereby relieving them of a duty to close. If the entire integrated television system was to be part of
the contract, and the Trustee’s husband wrongfully removed material components of the system in
breach of the contract, the Trustee would have breached the contract first, for which the Johnsons
would be excused of the duty to close unless and until the breach is cured.10 A plaintiff who has
materially breached a contract is not entitled to damages stemming from the defendant’s later
material breach of the same contract. United Brake Sys., Inc.v. American Envtl. Protection, 963
S.W.2d 749, 756 (Tenn. Ct. App. 1997) (quoting McClain v. Kimbrough Const. Co., 806 S.W.2d
194, 199 (Tenn. App. 1990); Santa Barbara Capital Corp. v. World Christian Radio Found., Inc.,
491 S.W.2d 852, 857 (Tenn. App. 1972)) (holding there can be no recovery for damages in a breach
10
Tennessee courts look to the Restatement (Second) of Contracts, § 241 to determine whether a breach of
contract is material such that the non-breaching party could avoid performance:
(1) The extent to which the injured party will be deprived of the expected benefit of his contract;
(2) The extent to which the injured party can be adequately compensated for the part of that benefit
of which he will be deprived;
(3) The extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(4) The likelihood that the party failing to perform or to offer to perform will cure his failure, taking
account of all the circumstances including any reasonable assurances; and
(5) The extent to which the behavior of the party failing to perform or to offer to perform comports
with standards of good faith and fair dealing.
Adams TV, Inc. v. ComCorp of Tenn., 969 S.W .2d 917, 921 (Tenn. Ct. App. 1997) (citing McClain v. Kimbrough
Constr. Co., Inc., 806 S.W .2d 194, 199 (Tenn. App. 1990); Restatement (Second) of Contracts, § 241 (1981)).
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of contract action by the party who himself breached the contract). Although the Trustee insists she
did not breach the contract by removing components from the integrated television system, the
Trustee also contends she made a reasonable offer to cure the alleged breach. We note, however,
that the Johnsons vigorously dispute the assertion that the Trustee offered to cure the breach;
therefore there are disputed facts concerning whether the Trustee made a reasonable offer to cure the
alleged breach.11
Although the Trustee carried her burden of demonstrating the elements required to support
her breach of contract claim, thereby shifting the burden of production to the Johnsons to
demonstrate a genuine dispute as to a material fact which would render summary judgment
inappropriate, the Johnsons succeeded in carrying their burden of production in response to the
motion for summary judgment. Therefore, the Trustee is not entitled to summary judgment as to the
issue of liability for breach of contract.
DAMAGES FOR BREACH OF CONTRACT
Because we have determined the Trustee is not entitled to summary judgment on the issue
of liability for breach of contract, the Trustee is not entitled to damages for breach of contract and
it is premature to determine which party may be entitled to damages and in what amount.
Accordingly, the award of liquidated damages in favor of the Trustee is reversed.
IN CONCLUSION
The judgment of the trial court is reversed, and this matter is remanded for further
proceedings consistent with this opinion. One-half of the costs of appeal are assessed against the
Mercer Family Trust, and one-half of the costs are assessed against Ida Louise Cromwell and Shirley
Zeitlin & Company Realtors.
___________________________________
FRANK G. CLEMENT, JR., JUDGE
11
There are genuine issues of material fact concerning whether the Trustee breached the contract first by
removing the components of the integrated television system, whether this was a material breach, and whether the
Johnsons were unreasonable in their refusal to close due to an offer allegedly made to “replace” the equipment. W e note,
however, that Mr. Johnson stated in his deposition that the offer to “replace” the equipment was tentative at best, and
that Ms. Cromwell’s only effort to cure was to look through the phone book and place calls to stereo stores. The
reasonableness of an offer to cure is but one factor to consider in determining whether the breach was material. See
Restatement (Second) of Contracts, § 241(4).
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