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In Tennessee, many spouses have joint bank accounts with rights of survivorship. Such accounts are considered accounts held by the spouses as “tenants by the entirety” unless the spouses have specifically agreed otherwise. Such accounts are referred to as “tenancy by the entirety accounts” or “entireties accounts.”

A tenancy by the entirety account is a form of ownership which is only available to spouses. Under Tennessee law, each spouse owns the entire account, and, when one of the spouses dies, the other spouse continues to own the entire account.

In a recent probate case which made it on appeal to the Court of Appeals of Tennessee, the Court of Appeals made some new law on tenancy by the entirety accounts. The case is In re Estate of Fletcher and here are the facts and procedural history:

  • Husband and Wife opened a joint account with a right of survivorship (which was deemed to be a tenants by the entirety account)
  • Husband and Wife deposited $100,000 in the account which they received from re-financing their home
  • According to the account agreement, either Husband or Wife could withdraw funds without the signature of the other
  • After the account was opened, Husband withdrew $100,00 from the account and bought a certificate of deposit (“CD”)
  • The CD was in Husband’s name only
  • Husband died with a will in place (died testate)
  • Husband’s will provided that his children (“Children”) were entitled to his personal property which included the CD
  • Husband’s will was admitted to probate
  • In the probate litigation, Wife contended that the CD was not part of Husband’s estate and Children contended that it was
  • The probate court held that the funds in the CD ceased to be owned by the entireties when Husband withdrew the funds from the entireties account and bought the CD in his name only
  • Under the holding of the probate court, the funds in the CD were, therefore, personal property owned by Husband at the time of his death, and, therefore, were part of his probate estate
  • Under the holding of the probate court, Children, not Wife, were entitled to the funds from the CD

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As much as any other area of the law, the common law related to contractual rights and to breach of contract cases seems to be generally pretty consistent from state to state, but there can be differences. Sometimes, those differences might make a critical difference in a breach of contract case.

So, when might Tennessee substantive law not apply to a breach of contract case filed in a Tennessee court?  There are two scenarios under which Tennessee substantive law will always apply in breach of contract cases. Those scenarios are pretty common. The first is where the parties have an enforceable written contract which states that Tennessee law applies. The second is where everything about the contract involves Tennessee and no other state. For example, where two parties who are both residents of Tennessee enter into a contract which is to be performed only in Tennessee, Tennessee substantive law will apply.

In some situations, whether Tennessee law will apply is not so clear. For example, in situations where a Tennessee party has a contract with a New York resident and some of the contract performance occurs outside of Tennessee, Tennessee substantive contract law might not necessarily apply. This is so even where the Tennessee resident can properly file its breach of contract claim in a Tennessee court.

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Generally speaking, a shareholder of a corporation or a member of an LLC has no individual right against a third party for an injury done to the corporation or LLC. While injuries done to corporations and LLCs most always have a direct monetary impact on owners, still, such claims belong to the corporation or LLC. Thus, they must be filed on behalf of the corporation or LLC. As well, any recovery must be paid to the corporation or LLC.

In Tennessee, claims filed on behalf of a corporation or LLC are called “derivative lawsuits,” “derivative claims” or “shareholder derivative lawsuits.” “Direct claims” belong directly to shareholders (or LLC members), and can be filed in the name of the injured shareholders or LLC members. Any recovery or relief in a direct claim will go to the shareholder or LLC member who brought the claim.

A shareholder who brings a lawsuit in his or her own name had better be careful. That is because, if the claim brought by the shareholder should have been brought on behalf of the corporation as a derivative claim, it will be dismissed on the basis that the shareholder does not have standing. (The same analysis applies to claims brought by LLC members.)

For many cases, distinguishing between a claim that must be filed as a derivative claim versus a claim that may be filed by a shareholder or member in his, her or its own name and right is pretty easy. For example, if an officer or owner of a corporation or LLC breaches his or her fiduciary duties by misappropriating monies or business opportunities of the corporation or LLC, a shareholder or member would have to sue that officer or owner in a derivative lawsuit.

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Tennessee breach of contract cases can sometimes be defended successfully by asserting the defense of mutual mistake. Here is a hypothetical example of a case in which the defense of mutual mistake would squarely apply: Seller sells a residential lot to Buyer. At the time Buyer and Seller sign their contract, unbeknownst to both, the property is in a flood plane and is unsuitable for a home.

Under the above hypothetical facts, both Buyer and Seller made a mutual mistake as to a material matter at the time they made their contract. Under Tennessee law, if the Buyer found out after the parties made their contract that the lot was unsuitable for a home; Buyer refused to pay; and, Seller sued buyer for breach of contract, then, Buyer could successfully defend those claims by pleading mutual mistake.

It is probably unlikely that the same facts as the above hypothetical will ever occur in a Tennessee case because of the prevalence of real estate contracts which have “as is” clauses in them. Such “as is” clauses in real estate contracts have taken away the defense of mutual mistake for more than one buyer of real estate in Tennessee.

Under Tennessee law, even where both parties entered into a contract under a mutual mistake about a material fact, if the contract allocated the risk of that mutual mistake to one party, that party cannot use the doctrine of mutual mistake. How does the risk of a mutual mistake become allocated to one of the parties? The answer is that “as is” and similar clauses do just that.

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In Tennessee breach of contract cases, the defense of the statute of limitations is raised with some frequency. Most of the time that it is asserted as an affirmative defense, it will not defeat the plaintiff’s claim. It is one of the affirmative defenses which lawyers insert reflexively into their answer to cover their client just in case the facts, as they develop, might support such a defense.

In some cases, however, a defendant can prove fairly easily that the plaintiff filed his or her breach of contract case outside of the statute of limitations. In such cases, all may not be lost if the plaintiff can prove that the defendant should be equitably estopped from relying upon the statute of limitations. So, what does it take under Tennessee law to prove that the defendant should be equitably estopped from asserting the statute of limitations as a defense?

Once the defendant makes out a prima facie statute of limitations defense, the plaintiff has the burden to prove “the defendant induced him or her to put off filing suit by identifying specific promises, inducements, suggestions, representations, assurances or other similar conduct by the defendant that the defendant knew, or reasonably should have known would induce the plaintiff to delay filing suit.” Redwing v. Catholic Bishop for Diocese of Memphis (Tenn. 2012) A defendant makes out a prima facie case by presenting facts which show that the plaintiff’s claim was filed after the statute of limitations had expired.

Under Tennessee law, a plaintiff cannot bar the defendant from relying upon the statute of limitations defense by introducing vague statements made by the defendant or statements that are ambiguous. The plaintiff, however, does not have to prove that the defendant was so specific that he or she expressly stated that he or she would not assert the statute of limitations as a defense. Likewise, the plaintiff does not have to prove that the defendant specifically said that he or she would delay filing a lawsuit.

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Many people who are entitled to benefits under a life insurance policy are denied the benefits by the insurance company on the basis that the insured (the person whose life was covered) made a misrepresentation. In life insurance cases where the insurance company denies payment on the basis of misrepresentation, a statute that is weighted in favor of life insurance companies will apply. That statute is T.C.A. §56-7-103.

In a nutshell, that statute provides that a life insurance company may deny the payment of benefits under a life insurance policy if it can prove either of two things: (1) that the insured made a misrepresentation with “actual intent to deceive”; or (2) that the misrepresentation increased the risk of loss to the life insurance company.

The statute is unfair for a couple of reasons. First, it permits the life insurance company to deny benefits if the misrepresentation increased its risk of loss at all — it does not require that it materially increased its risk of loss. Second, it allows a life insurance company to deny benefits if its risk of loss was increased even where the misrepresentation had nothing to do with the insured’s cause of death.  For example, if the insured stated on his application that he had no history of heart disease, but did, and died later of skin cancer, nevertheless, the life insurance company can avoid paying if it can prove that the failure to identify a history of heart disease increased its risk of loss (which it will almost certainly be able to do).

A case that illustrates how the statute works in real life insurance litigation is Smith v. Tennessee Farmers (Tenn. Ct. App. 2006). Here is how I would summarize the procedural history of that case: The trial court reached a fair result, but to do so, pretty much had to ignore T.C.A. §56-7-103, and the Court of Appeals of Tennessee reversed the decision of the trial court based on the statute.  I think the Court of Appeals reached a reasoned and correct decision, which decision was, unfortunately, compelled by an unfair statute.

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In Tennessee, family members and non-family members alike often provide care, perform services or pay for expenses for someone who passes away without compensating the person who provided the care or services or who paid expenses on their behalf. Can a family member or non-family member recover for care, services or expenses provided to someone while they were alive, after that person dies? The answer is: Sometimes they can, and sometimes they can’t.

If the person who provided the care, services or who paid the expenses (the “Provider”) has a valid and enforceable written agreement between him or her and the person who passed away (the “Deceased”), which is often not the case, then recovery against the estate of the Deceased should not be a problem (provided the probate estate has assets to pay the debt).

Frequently, life is not so orderly that a Provider receives an enforceable written agreement. Sometimes, death occurs before the Deceased was able to make arrangements to compensate the Provider by changing his or her will or by preparing a written agreement that will allow the Provider to recover. Sometimes, neither the Provider nor the Deceased anticipate that payment to the Provider will be a problem after the Deceased is gone, but it certainly can be.

If there is no enforceable written agreement between the Deceased and the Provider and the Deceased’s will or trust does not provide for payment to the Provider, whether a Provider can still recover for services, care or expenses paid is best approached by first determining whether the Provider was a family member or not. Why? Because the standard for recovery in such situations may well differ depending on whether the Provider was a family member or not, as explained more fully below.

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In many, if not just about every, breach of contract case filed in Tennessee, the plaintiff will include a quantum meruit claim with his, her or its breach of contract cause of action. Why is that done? What is a quantum meruit claim?

Quantum meruit is a legal cause of action which allows a court to award damages to the plaintiff even where there is no enforceable contract between the plaintiff and defendant. When a court uses quantum meruit, essentially, it implies a contract between the plaintiff and defendant pursuant to which the defendant must pay the plaintiff for whatever the plaintiff provided.  Quantum meruit can be used by a plaintiff to recover for goods, services, or both.

Quantum meruit claims accompany breach of contract claims so often because they provide a way for the court to award money to the plaintiff even when the plaintiff cannot prove that there was an enforceable contract. In fact, a court cannot even award damages pursuant to a quantum meruit claim if there was an enforceable contract between the parties. A quantum meruit claim can be an invaluable claim for a plaintiff because contracts, even written ones, may fail for various reasons: the statute of frauds; indefiniteness; mutual mistake; etc.

A fairly recent case from the Court of Appeals for the Sixth Circuit, in which the court applied Tennessee quantum meruit law, is illustrative of how important a quantum meruit claim can turn out to be. It also sheds light on how courts calculate damages for quantum meruit.

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Many breach of contract cases in Tennessee involve written contracts which contain what I refer to as “no oral modification clauses.” Although the language of these types of clauses differs, they usually say something like this: “This Agreement may not be amended, modified, changed or extended except by a written instrument signed by both parties.”

There is also a statute in Tennessee, T.C.A. §47-50-112(c), which directs that, if a contract contains “a provision to the effect that no waiver of any terms or provisions thereof shall be valid unless such waiver is in writing, no court shall give effect to such waiver unless it is in writing.”

Especially given the above statute, if two parties in a breach of contract case are litigating a case with a written contract which contains a clause disallowing oral modifications or changes, it would be impossible for one of the parties to prove that the contract had, in fact, been orally modified, right? Wrong. In fact, it happens all of the time.

Here is a summary of cases not upholding and upholding no oral modification clauses:

CASES HOLDING WAIVERS, AMENDMENTS AND MODIFICATIONS EFFECTIVE EVEN THOUGH CONTRACT CONTAINED CLAUSE REQUIRING CHANGES TO BE IN WRITING Continue reading →

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Any joint owner of real estate has the right to file a lawsuit to have the property sold and to have the proceeds distributed or to have the property divided (if that is even possible which, in my experience, most of the time it is not).  So, who pays the attorney’s fees in a partition case? Does the owner who hires the lawyer who files the partition case get to recover the attorney’s fees which that owner incurs? What about attorney’s fees incurred by joint owners who did not file the partition case, but who hired different lawyers and who also incurred attorney’s fees?

In Tennessee, the trial court may award attorney’s fees out of the “common fund” to any party who incurred legal fees in the partition case.  The “common fund” refers to the money received when the property is sold.  That authority is granted in a statute, T.C.A. §29-27-121.

In a 1968 opinion, the Supreme Court of Tennessee, in the case of Montgomery v. Hoskins, ruled that the Tennessee statute which provides Tennessee trial courts with discretion to award attorney’s fees in partition cases is not to be interpreted as permitting the trial court to award attorney’s fees to an owner who hired the attorney who filed the partition case while denying them to another owner who hired his or her attorney to represent him or her after the partition lawsuit was filed.

In Hoskins, one owner hired a lawyer to file a partition case to have property which he owned with another person sold.  The other person, a co-owner, hired his own lawyer after the partition case was filed.

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