Towe Iron Works, Inc. v. Towe
| Decision Date | 22 August 2007 |
| Docket Number | No. E2006-01971-COA-R3-CV.,E2006-01971-COA-R3-CV. |
| Citation | 243 S.W.3d 562 |
| Parties | TOWE IRON WORKS, INC., and David L. Towe, Sr., v. Donald W. TOWE, Sr., Shirley F. Towe, Richard L. Towe, Sr., Jewel M. Towe, and Carolyn E. McMurray, Personal Representative of the Estate of Willayne Towe and Trustees of any Trust thereunder. |
| Court | Tennessee Court of Appeals |
In this action to enforce an option to purchase contained in a lease between plaintiff/lessee and the children of the deceased lessor, the Trial Court, while finding the terms of the lease had been breached by the lessee, held that the plaintiff had properly exercised the option to purchase the property. Defendants have appealed and we reverse the Judgment of the Trial Court and remand.
Towe Iron Works, Inc., (plaintiff) brought this action on July 27, 2004, against Donald Towe, Sr., Shirley Towe, Richard Towe, Sr., Jewel Towe, and Carolyn McMurray, personal representative of the Estate of Willayne Towe. The Complaint alleged that Lawrence Towe, Sr., owned property at 2511 Mynderse Avenue and 2435 Western Avenue in Knoxville, and had leased the property to plaintiff on December 31, 1996. The Commercial Lease was attached as an Exhibit to the Complaint, with the initial term of the lease being five years, ending December 31, 2001. The Complaint averred the Lease was renewed by exercise of the option in Section 3, for another five years, ending on December 31, 2006.
The Complaint further stated the lease provided for monthly payments of $3,000.00 to Lawrence Towe, Sr., but he requested an additional $2,000.00 per month in advance rent, such that the total monthly payments were $5,000.00. Further, that Section 19 of the Lease gave plaintiff the option to purchase the property for $450,000.00, so long as the Lease had not been previously terminated, and so long as plaintiff had complied with all the terms and conditions of the Lease.
Plaintiff averred that on December 31, 1996, Lawrence Towe, Sr., conveyed a 7.128% interest in the subject property to each of his five children, subject to the terms of the lease, and that Lawrence Towe, Sr., died on September 19, 2001. Pursuant to the terms of his Will, the remaining 64.36% interest was conveyed in equal shares to his three living sons. (His son Lawrence, Jr., predeceased him, leaving his wife, Willayne Towe, as his only heir—Willayne Towe is now also deceased.)
Plaintiff asserted that it exercised the option to purchase the property on July 26 and 27, 2004, by hand delivery of notice to all of the heirs/successors, and at that time, the lease had not been terminated, and plaintiff had complied with all obligations as required by the lease.
The Commercial Lease provides that plaintiff will pay rent of $3,000.00 per month, and shall pay the property taxes, utilities, insurances, etc. Section 19 provides that plaintiff can purchase the property on or after January 1, 1997, for $450,000.00 "on the condition that this Lease shall not have been terminated previously and that Lessee has observed and complied with all terms and conditions of this Lease required of Lessee, up to the time of the exercise of this option and the payment of the purchase price, in the manner provided."
The Complaint was amended on July 27, 2004, adding Steven Albright as a defendant, as co-personal representative of the estate of Willayne Towe.
Defendants Donald Towe, Sr., and wife Shirley Towe, and Richard Towe, Sr., and wife Jewel Towe, answered with Counter-Complaint and Third-Party Complaint. They denied any knowledge of advance rent payments made to Lawrence Towe, Sr., denied that plaintiff had complied with its obligations under the Lease, and denied that plaintiff could have properly exercised the option to purchase. Defendants raised the affirmative defenses of failure to state a claim, unclean hands and breach of the lease.
In their Counter-Complaint, defendants sought a declaration that the lease option was void due to plaintiff's failure to comply with the terms of the lease. Defendants further sought a declaration, inter alia, that the lease was in breach and that the option to purchase was void due to that fact.
The personal representative of the Estate of Willayne Towe answered, denying any knowledge of additional lease payments made to Lawrence Towe, Sr., and that the lease had been breached by the lessee. They further sought a declaration that the lease was void and sought payment of rent due.
The Trial Court ultimately denied competing Motions for Summary Judgment and the case proceeded to trial. Following a protracted evidentiary hearing, the Court rendered a bench opinion and found that the lease containing the option to purchase was part a an estate planning package for Lawrence Towe, Sr., prepared by an attorney with special expertise in the area. The Court said that Lawrence Towe, Sr., executed a quitclaim deed giving a percentage interest in the property to each of his children, subject to the lease, as part of his estate planning, and that Lawrence Towe, Sr., and his children were to place the lease and quitclaimed property into a family limited partnership, along with the assets of Lawrence Towe, Sr., and that each sibling was to contribute $400.00 per month to the partnership during Mr. Towe's life. The Court found that Mr. Towe was to receive $5,000.00 per month in income from the partnership, which consisted of $3,000.00 per month lease payments from the lease, and $2,000.00 per month from the siblings' payments. The Court found that the lease and the quitclaim were executed, but Mr. Towe then lost interest in carrying out the rest of the estate plan. The Court held that none of the siblings paid any payments to the partnership, but Towe Iron paid $3,000.00 per month in rent to the lease, plus another $2,000.00 per month to Mr. Towe "to keep him appeased."
The Court found that Towe Iron was originally started by Lawrence Towe, Sr., and his son Richard, and that the other siblings eventually became employed there as well, and that as time passed, Lawrence, Jr., Richard, and Frances all retired, and their stock was repurchased by the company. The Court found that after 1993, David and Donald were the sole shareholders, and Donald sold his stock back to the company after this action began.
The Court found that in 1988, Lawrence Towe, Sr.'s wife passed away, and he remarried later that year, and that in 1996, the children became concerned that his wife was taking his assets, and considered a conservatorship, but a doctor found him to be competent. Further, that Mr. Towe and his second wife began having marital problems, and Mr. Towe expressed concern to his son, David, about his wife taking funds. The Court found that Lawrence Towe, Sr., had David's name added to his $100,000.00 bank account. The Court found that when Mr. Towe and his wife reconciled, David removed the money from the account and had it put in an account solely in David's name, and would not return control of the money to his father despite his father's request.
Shortly thereafter, the Court said Lawrence Towe, Sr., employed an attorney to help him regain his funds, and eventually the funds of about $100,000.00 were turned over to the attorney pursuant to a written designation of agent agreement prepared by Towe Iron's counsel. The Court found that David became trustee of a trust set up for Lawrence Towe, Sr.'s benefit, which was also to preserve his assets for his children. The Court found that the attorney, Matt Frere, was David's agent with the authority and responsibility to receive the money in the bank, plus the rent checks from Towe Iron, for the use and benefit of Mr. Towe, and that Frere also represented Mr. Towe in the execution of the quitclaim deed and lease, no one had an issue with the execution of the quitclaim deed, but defendants had attacked the execution of the lease, which took place at basically the same time.
The Court found that Lawrence Towe, Sr., had independent legal counsel who represented him in the execution of the lease, and who reviewed the lease and discussed the terms with him. The Court found that Mr. Towe executed the lease and the quitclaim deed at the same time, along with his second wife and his attorney, in the privacy of his own home. The Court discounted any testimony from the defendants suggesting that Mr. Towe did not know what he was signing at the time, and that Mr. Towe was competent.
Regarding undue influence, the Court found that while David communicated with his father regarding the lease, that they also communicated through their attorneys, and that David was not in a position to isolate his father from his wife or his other children. The court concluded that any presumption of undue influence had been overcome by clear and convincing evidence.
Regarding the issue of whether the option could not be exercised because Towe Iron had breached the lease, the Court found that Towe Iron stopped making rental payments when Mr. Towe, Sr., died on September 19, 2001, but that Towe Iron took the position that of the $5,000.00 per month payments it had been making, $2,000.00 constituted advance rent. The Court found that no one had ever told the decedent or his counsel that any part of the $5,000.00 was for advance rent. Rather, David Towe simply caused the payments to be made to...
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