TSC Industries, Inc. v. Tomlin
| Decision Date | 05 August 1987 |
| Citation | 743 S.W.2d 169 |
| Parties | TSC INDUSTRIES, INC., Plaintiff-Appellant, v. J. Michael TOMLIN, et al., Defendants-Appellees. |
| Court | Tennessee Court of Appeals |
Gerald A. Smith and W. Gary Blackburn, Barnett & Alagia, Nashville, for plaintiff-appellant.
Ward DeWitt, Jr. and Dan Elrod, Trabue, Sturdivant & Dewitt and Peter Curry and Charles McElroy, Boult, Cummings, Conners & Berry, Nashville, for defendants/appellees.
This is an appeal from a directed verdict in favor of the defendant, First American Bank of Nashville.
The litigation arose out of the sale by the plaintiff, TSC Industries, Inc. (TSC), of the building in which its offices were located. In May 1984, TSC filed suit against J. Michael Tomlin, the purchaser of the property, alleging fraud and breach of contract, and seeking rescission of the sale or compensatory and punitive damages. In June of 1985, TSC filed suit against First American Bank of Nashville (FAB), alleging that it: (1) induced Tomlin to breach his sales contracts; (2) conspired with others to induce Tomlin to breach the contracts; (3) conspired with Tomlin and others to breach the contracts; and (4) conspired with Tomlin and others fraudulently to induce TSC to enter into a contract. TSC also sought both compensatory and punitive damages from FAB. The cases were consolidated for trial.
Trial before a jury began on August 11, 1986. At the close of plaintiff's proof, both Tomlin and FAB moved for a directed verdict. Following oral argument, the trial court directed a verdict in favor of FAB and dismissed the action against it. That verdict alone is the subject of this appeal.
The trial continued with Tomlin as the sole defendant. After his direct testimony, but prior to cross-examination, the parties entered into a compromise and settlement in which Tomlin agreed to pay TSC $600,000.
In 1982 TSC learned that its parent corporation, Fuqua Industries, was planning to sell the company. In anticipation of that sale, TSC decided to sell its headquarters, a 70,000 square foot building located at 915 Murfreesboro Road in Nashville (the "Trac-Tenn Building"). The property had been financed by industrial revenue bonds, and TSC management felt that an immediate sale of the building and retirement of the bonds would facilitate the sale of the company. To that end, TSC entered into negotiations with Tomlin.
A proposed purchase agreement was drawn up in which Tomlin would purchase the building for $2,175,000 and lease a portion of it back to TSC. The additional space would be leased to the State of Tennessee. TSC considered the proposal, then arranged a meeting with Tomlin.
At that meeting Thomas J. Hennesy, then a vice-president of Fuqua Industries, expressed concern about the purchase price, as TSC was seeking at least $2,700,000 for the property. Tomlin explained that in lieu of the full price he was offering a series of rent rebates, based on the interest rate at which he obtained financing. Hennesy then stated that TSC would prefer to receive additional cash, so Tomlin mathematically converted the proposed rent rebates into cash payments. The figures were acceptable to Hennesy, and on August 20, 1982, a Real Estate Purchase Agreement was executed. Closing was set for no later than January 15, 1983.
The relevant provision of the Agreement, paragraph nine (9), reads as follows:
In the event that the Purchaser receives 100% financing for its purchase of the Property at an interest rate of 15% or less, Seller shall have the option of paying the first year's annual rental at the applicable rate set forth below under column (a) or receiving from Purchaser the applicable cash payment set forth below column (b):
(a) (b)
Interest Rate of Rent Per Square Cash
Purchaser's Loan Foot Per Year Payment
---------------- --------------- --------
14.01-15% $6.34 $250,000
13.01-14% $5.70 $400,000
12.01-13% $5.05 $600,000
TSC alleges that Tomlin made representations that he would obtain the lowest interest rate possible.
The parties expected Tomlin to obtain long-term financing through either industrial revenue bonds or conventional financing. On November 29, 1982, Tomlin obtained approval from FAB for a short-term loan (thirteen months) in order to acquire the property; the interest rate was 15 1/4%. He told TSC that he would obtain permanent financing after the closing, which he requested be done at the earliest possible date. However, as the 15 1/4% interest rate did not entitle TSC to a cash payment under the Agreement, Hennesy was unwilling to accelerate the closing unless Tomlin agreed to extend the entitlement to any subsequent financing. Therefore, by letter dated December 7, 1982, TSC and Tomlin entered into an agreement (the "Extension") providing that:
It is the intent and purpose of this letter to evidence the agreement of the parties that in lieu of ... [p 9] ..., and in satisfaction and modification of the said Real Estate Purchase Agreement, we agree that in the event, and only in the event the undersigned obtains refinancing for his purchase of the property within one (1) year from the date hereof, at an interest rate of 15% or less, and upon other terms acceptable to J. Michael Tomlin, TSC Industries, Inc. shall receive from the undersigned the applicable cash payment set forth under Column (b).... It is represented hereby that M. Michael Tomlin's initial financing of the real property is at such rate and upon such terms as not to entitle TSC Industries, Inc. to any cash payment or reduction in rental payment at this time. Nevertheless, J. Michael Tomlin agrees to use his best efforts within the one (1) year period to obtain industrial development bond financing for the property.
The sale was closed on December 6, 1982. Tomlin did not obtain refinancing within one year of the Extension, and TSC's entitlement to any cash payment expired. Subsequently, FAB renewed the loan for an additional short term at an interest rate of 12.9%.
Before reaching the question of the propriety of the directed verdict, we must first dispose of an issue raised by the appellee, FAB.
Relying upon Swift v. Beaty, 39 Tenn.App. 292, 282 S.W.2d 655 (1954), FAB argues that Tennessee law provides that when an injured party to a contract settles with the alleged breaching party, the settlement operates as a discharge of any claim the injured party might have against a third person for inducing the alleged breach. Thus, TSC's settlement with Tomlin should bar the action against FAB.
We believe that this is an inaccurate interpretation of the holding in Swift. In that case the plaintiff, after the alleged breach, deliberately executed a written cancellation of the contract without reserving his right of action. The Court held that the rule of Watts v. Warner, 151 Tenn. 421, 269 S.W. 913 (1925), was controlling. In Watts, the Supreme Court stated:
So this bill ... rests on the proposition that there was a contract between Mrs. Warner and the complainant.... Chapter 154 of the Acts of 1907 [T.C.A. Sec. 47-50-109], upon which the suit ... is founded, denounces interference with 'any lawful contract'....
When, therefore, Mrs. Warner ... avoided the alleged contract, the whole basis of the complainant's suit ... was swept away. No judgment could be based against a defendant for interference with an unenforceable repudiated contract.
The holding in Swift is therefore based on the proposition that the plaintiff had no legal right to enforce the contract, and thus could not maintain an action against a third party for inducing its breach. In the case before us, nothing impaired TSC's right to enforce its contract with Tomlin. As stated in Swift, 282 S.W.2d at...
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