McNeil v. Nofal

• Decision Date: 12 September 2005
• Citation: 185 S.W.3d 402
• Parties: Don C. McNEIL v. Zaidoun NOFAL.
• Court: Tennessee Court of Appeals

185 S.W.3d 402

Don C. McNEIL v. Zaidoun NOFAL.

Court of Appeals of Tennessee, at Nashville.

April 12, 2005 Session.

September 12, 2005.

Permission to Appeal Denied by Supreme Court February 6, 2006.

Renard Astarie Hirsch, Sr., Nashville, Tennessee, for the appellant, Don McNeil.

David Lyons, Nashville, Tennessee, for the appellee, Zaidoun Nofal.

OPINION

WILLIAM B. CAIN, J., delivered the opinion of the court, in which WILLIAM C. KOCH, JR., P.J., M.S. and PATRICIA J. COTTRELL, J., joined.

This appeal arises from the seller's suit to enforce two notes as partial consideration for a seller-financed purchase of a business and inventory. The purchaser responded alleging fraud and negligent misrepresentation as an affirmative defense and counterclaim respectively. The trial court found in favor of the seller for the full amount of the lesser note, awarding attorney fees and interest as provided therein. The court found in favor of the purchaser on his counterclaim for negligent misrepresentation. In addition, the trial court found comparative fault on the part of the purchaser affecting the negligent misrepresentation damages. The court then offset recovery on the greater of the two notes with the amount of negligent misrepresentation damages awarded. The court denied the seller's claim for attorney fees and interest on the note. We reverse the trial court's finding of negligent misrepresentation and its reduction applied to the greater note; we affirm the trial court's judgment as to the lesser note. The cause is remanded for a determination of attorney fees consistent with this opinion.

Zaidoun Nofal purchased the Little Barn Market from Don C. McNeil. Although Mr. McNeil had operated the market for a brief time prior to the sale, his experience with the business came more from operating the market with his son, who had left the business some six (6) months earlier. Mr. Nofal had purchased and sold similar businesses before this transaction. As consideration for the sale, Nofal paid cash, assumed an outstanding note between McNeil and Hollingsworth Oil Co., and executed two promissory notes. One note in the amount of $7,824.00 served to purchase inventory. The other note, in the amount of $25,000.00, helped to cover the purchase of the business. The terms of the notes provided for collection of attorney fees and interest upon default. The contract for sale provided:

This contract is contingent upon the following items:

1. Acceptable Sales Verification. (2 months worth of sales tax)

2. Buyer's ability to receive a beer permit.

. . .

If any of these contingencies cannot be met, then the contract will become null and void and the earnest money will be returned within 7 business days.

Broker's Fee: Buyer agrees to pay Listing Agency/Broker the fees specified by separate agreement between Listing Agency/Broker and Buyer the day of the closing. Broker has permission from both the Seller and Buyer to act as a facilitator.

. . .

Breach of Contract by Seller: If this agreement is breached by Seller or if Seller fails for any reason to complete the sale of this property in accordance with the terms set forth herein, Seller shall pay damages in an amount equal to the brokerage as specified in the listing agreement plus attorney fees and costs. In the event of default by Seller, the earnest money shall be returned to Purchaser and Purchaser shall have the right to affirm this contract and enforce its specific performance.

. . .

Entire Agreement: This contract contains the entire agreement of the parties relating to the subject matter hereof and cannot be changed except by their written consent.

. . .

Consult Your Attorney None of the Brokers or Agents, if any, can give you legal or tax advise. [sic] This is intended to be a legally binding contract. READ IT CAREFULLY. Federal law may impose certain duties when Seller and/or Purchaser is a foreign party, or Seller receive a certain amount of U.S. currency in connection with a real estate closing. IF YOU DO NOT UNDERSTAND THE EFFECT OF ANY PART OF THIS CONTRACT, CONSULT YOUR ATTORNEY OR TAX CONSULTANT BEFORE YOU SIGN THIS CONTRACT.

The buyer, Zaidoun Nofal, executed the two promissory notes and signed the Contract. Both notes contained the following language:

The occurrence of any of the following shall constitute an event of default under this note: (a) the failure of Maker to make any payment when due under this or any other obligation to Payee (time is of the essence of this note) ... Upon default, Maker agrees to pay the remaining unpaid principal balance of the indebtedness evidenced hereby and all court cost and expenses, including reasonable attorneys fees, incurred by the Payee in collecting any amounts due hereunder or to protect Payee's interest in any collateral securing the same. In the event Maker fails to make the payments required under this agreement, the unpaid balance shall thereafter bear interest at the maximum lawful rate.

The purchase of business and inventory was set to close on January 2, 2002. The notes were executed on that date. The testimonial record reveals that the day following the closing, Mr. Nofal noticed that the sales of inventory and gasoline at the market did not approach those figures of sales stated by Mr. McNeil prior to closing. Mr. Nofal attempted to contact Mr. McNeil but to no avail. Mr. Nofal did not sue to rescind the sales contract or the promissory notes. He simply refused to make any payments on those notes. On April 10, 2002, Mr. McNeil filed his suit in Davidson County Chancery Court to enforce the promissory notes in the amount of $7,824 and $25,000, respectively. On May 8, 2002, Mr. Nofal filed his Answer and Counter Complaint in which he made the following allegations:

AFFIRMATIVE DEFENSES

The defendant raises the affirmative defenses of estoppel, fraud, illegality and waiver. The plaintiff induced the defendant to purchase his business called the Little Barn Market on Clarksville Highway, Nashville, based upon inflated monthly sales figures which were false, which the plaintiff knew were false, which the plaintiff [sic] relied upon when purchasing the Little Barn Market, to his detriment.

COUNTER-COMPLAINT

The defendant now assumes the role of counter-plaintiff and would show as follows:

1. Paragraph one of the original complaint is incorporated herein by way of reference.

2. Paragraph two of the original complaint is incorporated herein by way of reference.

. . .

FRAUD AND FRAUDULENT INDUCEMENT

22. The counter-defendant made certain statements and provided information to the plaintiff, the purpose of which was to induce the counter-plaintiff to purchase his business.

23. The statements made by the counter-defendant, and the information provided by the counter-defendant, were false. The counter-defendant knew they were false at the time that he made the statements and provided the false information.

24. The counter-defendant made false statements and provided fraudulent information to induce the counter-plaintiff to purchase the Little Barn Market. The counter-plaintiff relied upon the false and fraudulent statements made by the counter-defendant, to the detriment of the counter-plaintiff.

25. The fraudulent acts of the counter-defendant constitute the tort of fraud, fraudulent inducement, and negligent misrepresentation.

26. As a result of the false and fraudulent statements and information provided by the counter-defendant, the counter-plaintiff suffered damages, including lost income, loss of business opportunity, the purchase price, down payment, payments made to the counter-defendant and other liquidated and unliquidated damages.

27. The fraudulent acts, statements and information provided by the counter-defendant was done willfully and intentionally, to induce the counter-plaintiff to purchase a business he would not otherwise have purchased. The counter-defendant's conduct warrants punitive damages.

Mr. Nofal prayed for the following relief:

. . .

4. That the counter-plaintiff be awarded damages for the counter-defendant's breach of contract in an amount to be determined at trial.

5. That the counter-defendant be found to have committed fraud, fraudulent inducement, or negligent misrepresentation in his dealing with the counter-plaintiff.

6. That the counter-plaintiff be awarded damages for the counter-defendant's fraud, fraudulent inducement, and negligent misrepresentation.

7. That this Court award the counter-plaintiff punitive damages for the counter-defendant's willful, intentional acts of fraud.

8. That this Court award the counter-plaintiff his attorney's fees and all costs of this cause.

9. That the counter-plaintiff be granted other general relief.

On September 24, 2002, after a bench trial, Chancellor Lyle found that McNeil negligently misrepresented the market's sales figures. The court assigned 20 percent (20%) comparative fault to Nofal. The court held that the measure of Nofal's damages before assessment of comparative fault amounted to the $25,000 amount on the second note. Of particular import is the following language from the court's Order:

The plaintiff testified, and the Court credits his testimony, that with the exit of his son and the default of the lessee, the sales of the market declined. The plaintiff testified, and the Court credits the testimony, that the plaintiff was unsure of the sales volume of the market when the lessee was operating it because the plaintiff was not required to file sales figures with the State of Tennessee. The plaintiff did not monitor or keep track of the sales volume during the time the lessee was operating the market. The plaintiff testified, and the Court credits that testimony, that in evaluating the sales volume of the market the plaintiff used the volume generated during the operation by his son because that was a fair indicator of the business potential of the market under good management.

In addition to...