Apco Amusement Co., Inc. v. Wilkins Family Restaurants of America, Inc.

• Decision Date: 16 February 1984
• Citation: 673 S.W.2d 523
• Parties: APCO AMUSEMENT COMPANY, INC., Plaintiff-Appellant, v. WILKINS FAMILY RESTAURANTS OF AMERICA, INC., and Dan W. Wilkins, Defendants-Appellees. 673 S.W.2d 523
• Court: Tennessee Court of Appeals

Page 523

673 S.W.2d 523

APCO AMUSEMENT COMPANY, INC., Plaintiff-Appellant, v. WILKINS FAMILY RESTAURANTS OF AMERICA, INC., and Dan W Wilkins, Defendants-Appellees.

673 S.W.2d 523

Court of Appeals of Tennessee Eastern Section.

Feb. 16, 1984.

Permission to Appeal Denied by

Supreme Court June 11, 1984.

Harry Berke, of Berke, Berke & Berke, Chattanooga, for plaintiff-appellant.

John K. Morgan, of Morgan & Garner, Chattanooga, for defendants-appellees.

OPINION

SANDERS, Judge.

This appeal is the outgrowth of the breach of two separate contracts between the parties.

The Plaintiff-Appellant, APCO Amusement Company, Inc., sued the Defendants-Appellees, Wilkins Family Restaurants of America, Inc., and Dan W. Wilkins, for the breach of a contract which the parties entered into on December 15, 1978. The Plaintiff is engaged in the coin-operated amusement machine business in Chattanooga and Hamilton County. The Defendant is engaged in the restaurant business in the same area. In December, 1978, the parties entered into a lease agreement for a period of three years wherein the Defendant subleased to the Plaintiff a portion of the building in Dayton Plaza Shopping Center, in which it operated its restaurant, for the Defendant to place a number of coin-operated machines. Due to lack of business the Defendant closed the restaurant on December 24, 1980. However, the portion of the building in which the coin-operated machines were located was not permanently closed until April, 1981.

In the meantime there were extensive negotiations between the parties in connection with the parties' entering into a similar agreement for the Plaintiff to occupy a portion of the space in which the Defendant was planning to operate a new restaurant at 5615 Lee Highway. On February 13, 1981, the parties signed a document stated to be a "letter of intent" setting forth certain commitments and obligations of the respective parties in connection with sharing the space on Lee Highway.

In APCO's original complaint it is alleged the Defendants breached the contract by closing the place of business before the expiration of its lease, and sought damages therefor.

The Defendants answered, denying liability. They also filed a counterclaim alleging the Plaintiff had breached the contract (letter of intent) dated February 13, 1981. The Counterplaintiff, Wilkins, alleged it had expended some $15,000 remodeling the Lee Highway premises for the use of APCO but APCO had failed to perform its portion of the contract and had refused to occupy the premises.

Upon the trial of the case the Defendants did not deny they had closed the restaurant in Dayton Plaza before the termination of the lease but insisted they had spent some $15,000 remodeling the Lee Highway property and the Plaintiff had breached its contract and was liable for damages in that amount.

APCO, however, insisted there was no contract between the parties in connection with the Lee Highway property; the "letter of intent" was only what it purported to be; it was not a contract and did not rise to the dignity of a contract.

Upon the trial of the case the chancellor found the Defendants had breached the original contract and fixed the Plaintiff's damages at $15,286.10. In his determination of the counterclaim the court found the letter of intent constituted a contract between the parties. He found the Plaintiff had breached the contract and the Defendants and Counter Plaintiffs were entitled to recover the sum of $14,132 which they had expended in remodeling the building for Plaintiff's occupancy. This amount was set off against the Plaintiff's recovery, allowing the Plaintiff a net judgment of $1,822.10.

There has been no appeal from the judgment for the Plaintiff against the Defendant. However, the Plaintiff has appealed from the judgment against it on the counterclaim. On appeal the Plaintiff has presented six issues for review. Its first issue is, "Did the chancellor err in holding that the letter of intent was a final, binding agreement rather than a step toward finalizing an agreement."

The letter of intent which was signed by both the Plaintiff and the Defendant is as follows:

"This is a letter of intent between Dan Wilkens and APCO Amusement Company, Inc. to jointly set up an amusement center at 5615 Lee Highway, Chattanooga, Tennessee.

"Mr. Wilkins agrees to furnish approximately 1400 square feet of floor space at the above address and agrees to do the following things:

"A. Remodel the interior and furnish electrical outlets to the specifications of APCO.

"B. Install exterior door and two windows as agreed upon by Dan Wilkins and APCO.

"C. Dan Wilkins will furnish all utilities.

"D. Dan Wilkins will hire and provide supervision for the employees for the amusement center; however, the employees must meet with the approval of APCO. Also, the attire of the employees must conform to the standard set by APCO with respect to the trademark and operation.

"E. Dan Wilkins will pay 50% of a sign selected by APCO, with the understanding that at the end of the lease agreement of said premises or termination of the business, whichever occurs first, APCO will reimburse Dan Wilkins for his half of the cost less depreciation and Dan Wilkins agrees that the sign then will become the property of APCO.

"In return for the above services APCO Amusement Company, Inc. will do the following:

"A. Furnish the use of all amusement machines, electronic devices and any other amusement equipment which they deem necessary.

"B. APCO will service, maintain and keep in good repair, at their own expense all of the amusement machines, electronic devices and electronic equipment which they own and furnish to the center.

"C. APCO will permit the use of their trademark name for the amusement center and their trademark sign.

"D. APCO will pay up to $1500.00 toward the installation of two toilets in Dan Wilkins leasehold without any obligation for remuneration by Dan Wilkins.

"Further, it is agreed that APCO will retain 5% of the gross receipts for advertising and promotion at their discretion and the balance of the gross receipts from the amusement machines will be split on a 50/50 basis with Dan Wilkins.

"APCO will place an order for the required machines upon acceptance of this letter by both parties.

"This letter of intent is hereby accepted this 16th day of February, 1981 by:"

Shortly after the letter was signed by the parties Wilkins hired a general contractor, John Baggett, who began the remodeling work contemplated by the document. An invoice from Baggett's Construction Company shows that, as of April 1, 1981, Wilkins had paid Baggett $14,132 for work performed and purchases made in the areas of demolition, electrical, brick work, sheet rock, sprinkler system, toilets, partitions, store front, and doors. The invoice further indicates that work remained to be completed on the floors and ceiling and in the electrical area.

It appears that, while the remodeling work was in process, APCO purchased certain pieces of equipment intended to be used in the new game room, but proceeded no further with the venture.

At trial APCO denied liability, contending the letter was not a final, binding agreement between the parties and therefore was not capable of being breached. It also questioned whether or not the $14,132 worth of work actually was performed by Baggett or was paid for by Wilkins.

"Broadly speaking, preliminary negotiations as to terms of an agreement do not constitute a contract, although this does not preclude the formation of a binding contract during the negotiations." 17 Am.Jur.2d Contracts Sec. 25 (1964). In this regard, "[i]t is well settled that a binding contract may be entered into through the medium of correspondence by letter or telegraph." Neilson & Kittle Canning Co. v. F.G. Lowe & Co., 149 Tenn. 561, 564, 260 S.W. 142 (1924). Therefore, merely because the document signed by the parties was expressly designated to be a "letter of intent" does not preclude it from constituting a valid contract.

In determining whether or not the letter should be construed as a binding contract, we must keep in mind that

"[t]he primary test as to the actual character of a contract is the intention of the parties, to be gathered from the whole scope and effect of the language used, and mere verbal formulas, if inconsistent with the real intention, are to be disregarded. It does not matter by what name the parties chose to designate it. But the existence of a contract, the meeting of the minds, the intention to assume an obligation, and the understanding are to be determined in case of doubt not alone from the words used, but also the situation, acts, and the conduct of the parties, and the attendant circumstances."

17 Am.Jur.2d Contracts Sec. 1 (1964).

This same approach, examining the conduct of the parties, was adopted by this court in the case of Bailey v. Brister, 49 Tenn.App. 191, 353 S.W.2d 564 (1961). In determining whether certain correspondence, in the form of letters sent between the parties, constituted a contract or was merely a part of the negotiations leading to a potential contract, we stated that "[t]he practical interpretation of a contract by the parties thereto is entitled to great, if not controlling influence, and will be adopted by the courts." Id. at 568. The court explained this rule of interpretation, quoting from Williston on Contracts, Sec. 623, as follows: " ' "The interpretation given by the parties themselves to the contract as shown by their acts will be adopted by the court, and to this end not only acts but the declarations of the parties may be considered." ' " Bailey, 353 S.W.2d at 568. In...