Smith v. Hi-Speed, Inc.

• Decision Date: 30 August 2016
• Docket Number: No. W2015–01613–COA–R3–CV,W2015–01613–COA–R3–CV
• Citation: 536 S.W.3d 458
• Parties: Peggy L. SMITH, Individually and as Trustee of Peggy L. Smith Trust v. HI–SPEED, INC., et al.
• Court: Tennessee Court of Appeals

536 S.W.3d 458

Peggy L. SMITH, Individually and as Trustee of Peggy L. Smith Trust

v.HI–SPEED, INC., et al.

No. W2015–01613–COA–R3–CV

Court of Appeals of Tennessee, AT JACKSON.

April 1, 2016 Session

Filed August 30, 2016

Carl I. Jacobson, John J. Cook, and Jonathan P. Lakey, Memphis, Tennessee, for the appellant, Peggy L. Smith.

John J. Heflin and Jack F. Heflin, Memphis, Tennessee, for the appellees, Hi–Speed, Inc., and Mock, Inc.

Arnold B. Goldin, J., delivered the opinion of the Court, in which J. Steven Stafford, P.J., W.S., and Brandon O. Gibson, J., joined.

Arnold B. Goldin, J.

This is a breach of contract case related to a commercial property located in Arkansas. Plaintiffs also asserted claims for unjust enrichment, quantum meruit, equitable estoppel, and promissory estoppel. Following a hearing on Defendants' motion for partial summary judgment, the trial court dismissed all of the claims except for an alleged breach of contract by Defendant Hi–Speed, Inc. After a bench trial on this remaining claim, the trial court determined that the Plaintiffs were not entitled to any damages. We affirm.

Background and Procedural History

This appeal stems from a dispute regarding the financing and leasing of an Arkansas commercial building located on Lindsey Road in the Little Rock Port Industrial Park (the "Little Rock Property"). The Little Rock Property is owned by the Peggy L. Smith Trust (the "Trust"). The trustee of the Trust, as well as its sole beneficiary, is Peggy L. Smith ("Ms. Smith"). At a time prior to the commencement of this lawsuit, the Trust also owned real property at 3013 Thomas Street in Memphis, Tennessee (the "Thomas Street Property").

The Defendants in this case, Hi–Speed, Inc. ("Hi–Speed"), and Mock, Inc. ("Mock") (collectively, "Defendants"), are both engaged in the same general line of business. Both companies sell, maintain, test, and repair electrical motors, hoists, and cranes. Although Hi–Speed and Mock have had common leadership and ownership at various points throughout their history, Hi–Speed is incorporated in Arkansas, whereas Mock is incorporated in Tennessee. Mock, which was incorporated in 1978, previously operated its business at the Thomas Street Property.

The present dispute can be traced to developments involving both Defendants over the past decade. Although Ms. Smith previously had ownership interests in both corporations, her ownership interests had ceased by the time of these recent developments. By 2005, both Hi–Speed and Mock were seeking to expand. Ms. Smith's son, Bret Mock, served as President of both companies. Although Mock was operating out of the Thomas Street Property at the time, it relocated to a facility in Millington, Tennessee, before the end of 2006. Prior to its move to the Millington facility, Mock had been paying rent to Ms. Smith¹ for a lease of the Thomas Street Property. The base rent amount was $4,000.00 per month.

Hi–Speed also made plans to move into a new facility during this period. On December 1, 2005, Hi–Speed entered into a lease agreement with the Trust regarding the Little Rock Property. In pertinent part, the lease agreement provides as follows:

WHEREAS , [the Trust] is the owner of certain real property and is willing to "build to suit" a facility as hereinafter described in EXHIBIT "B"; and

WHEREAS , [Hi–Speed] desires to lease the real property, facility and improvements from [the Trust].

NOW, THEREFORE , in consideration of the mutual covenants, conditions and promises set forth herein, [the Trust] and [Hi–Speed] agree as follows:

1. Premises. [The Trust] hereby agrees to build the facility described in EXHIBIT "B" on the real property on Lindsey Road in Little Rock, Arkansas, which is further described in EXHIBIT "A" ("Premises") and further agrees to lease same to [Hi–Speed] upon completion of construction within the period specified in EXHIBIT "B".

2. Term. The initial term (the "Initial Term") of this Lease shall be for twenty (20) years commencing upon issuance of a valid Certificate of Occupancy for the operation of [Hi–Speed's] business at the Premises (the "Commencement Date"). [Hi–Speed] shall have the right, but not the obligation, to renew this Lease for two (2) additional five (5) year terms ("Renewal Terms") by written notice to [the Trust] on or before thirty (30) days prior to the expiration of the Initial Term or either Renewal Term, as applicable. During the Renewal Terms, this Lease shall continue on the same terms, covenants and conditions as in the Initial Term.

3. Rental.

(a) Base Rent. Beginning on the Commencement Date and on the first day of each calendar month thereafter, [Hi–Speed] shall pay to [the Trust] without notice or demand from [the Trust] and without right of set-off the sum of Fourteen Thousand and No/100 Dollars ($14,000.00) as rental for the Premises ("Base Rent"). In the event [the Trust] fails to pay sums that [the Trust] is obligated to pay under this Lease, [Hi–Speed] may pay such sums on behalf of [the Trust] and deduct same from Base Rent.

(b) Additional Rent. In addition to Base Rent, [Hi–Speed] shall be responsible for the following additional costs, without first receiving demand therefor (except as otherwise expressly provided below) and without offset against the Base Rent:

(i) [Hi–Speed] shall reimburse [the Trust] for interest expense, loan fees and related costs of the construction financing during the construction phase of the Premises until the Commencement Date.

(ii) In consideration for the pledging by [the Trust] of its real property in Memphis, Tennessee, known municipally as 3013 Thomas Street to further secure the construction financing, [Hi–Speed] shall pay [the Trust] Four Thousand and No/100 Dollars per month for so long as said property shall serve as said additional collateral .

* * * *

20. Miscellaneous

(a) Successors and Assigns. This Lease shall be binding upon and shall inure to the benefit of [The Trust], [Hi–Speed] and their respective successors and assigns.

(b) Governing Law. This Lease shall be construed under the laws of the State of Tennessee.

(c) Entire Agreement. This Lease contains the entire agreement between [the Trust] and [Hi–Speed] regarding the Premises which are the subject of this Lease and may only be altered by a written agreement executed by both [the Trust] and [Hi–Speed]. (emphasis added)

According to Ms. Smith, the above written agreement does not represent the entirety of the parties' agreement regarding the Little Rock Property. Contrary to the terms of the lease agreement, she contends that the $4,000.00 payment of "Additional Rent" was not tied solely to the timeframe that the Thomas Street property served as collateral to secure construction financing. She asserts that a "Loan Guaranty Agreement" entered into between her and the Defendants provided a different understanding. As outlined in the Complaint that Ms. Smith filed in connection with this litigation, the purported "Loan Guaranty Agreement," which was not in writing, covered the following terms:

(a) Smith would sell the Thomas Street Building and invest the proceeds into the construction of the Little Rock Facility. Defendants would assist Smith in her efforts to sell the Thomas Street Building.

(b) Smith would borrow another $1 million or more to complete the construction of the Little Rock Facility.

(c) Hi–Speed, Inc. would enter into a lease for a 20 year term.

(d) The rent under the lease would be an amount approximately equal to the monthly principal and interest payments due under the loan for the construction of the Little Rock Facility.

(e) As consideration for her agreement to sell and commit the proceeds of the Thomas Street Building to the project, and for the risk incurred by Smith in financing the Little Rock Facility, Defendants agreed to pay Smith a monthly amount ... for the term of the loan equal to $4,000.00, plus an additional amount to be determined at later date.

Although her Complaint specifically states that Defendants were to pay the additional "monthly amount" for the term of the loan , Ms. Smith has averred generally in this litigation that the additional payments were to be made for a period of twenty years.² Moreover, she has argued that the additional monthly payments were to, in part, replace the rent she previously received from Mock's lease of the Thomas Street Property.

To secure financing for the construction of the improvements to the Little Rock Property where Hi–Speed eventually relocated, the Trust pledged the Thomas Street Property to Eagle Bank and Trust Co. ("Eagle Bank"). After the construction loan matured, Ms. Smith obtained permanent financing, which required her to make monthly payments to Eagle Bank in the amount of $13,050.75. In February 2008, Hi–Speed began paying this monthly amount directly to Eagle Bank as an accommodation to Ms. Smith and the Trust. Prior to this time, Hi–Speed had paid $12,500.00 per month directly to Eagle Bank, an amount equal to the payments required under the construction loan.

Hi–Speed also made additional $4,000.00 monthly payments to Ms. Smith while the Thomas Street Property was pledged as collateral³ in accordance with the written lease agreement, and it continued to make these payments even after the Trust sold the Thomas Street Property at auction in February 2008. According to the deposition testimony of Barbara McCullough ("Ms. McCullough"), former Secretary/Treasurer for Hi–Speed, Bret Mock directed that these payments be made over her objection. In late 2008, Hi–Speed increased its additional payments from $4,000.00 to $5,500.00 per month.

In January 2009, Bret Mock passed away. Notwithstanding Bret's death, the $5,500.00 monthly payments continued to be made by Hi–Speed to Ms. Smith. According to Ms. McCullough's deposition testimony, Hi–Speed continued to make the payments at the direction of Bret's surviving wife, Ellen Mock. Ms. McCullough also stated in her deposition that the payments continued to be made after...