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The Tennessee Statute of Frauds requires several types of contracts to be memorialized in a writing (or combination of writings) and signed in order to be enforceable. The three most important types of contracts covered by the Statute of Frauds, at least from a commercial standpoint, are contracts for the sale of land and leases longer than one year; agreements to pay the debts of another; and contracts that cannot possibly be performed within one year.

If a contract is covered by the Statute, does a modification of that contract also have to meet the requirements of the Statute? There is Tennessee case law to support that argument.  The case of Davidson v. Wilson is such a case, and one that demonstrates the ability of the Statute of Frauds to cause what many would describe as an inequitable result in a breach of contract case.

Here are the key facts of that case:

  • Buyer and Seller entered into a written contract providing that Seller would sell a specific 50 acre tract to Buyers for $124,750
  • The closing date for the sale in the written contract was December 5, 2005
  • On the closing date of December 5, the Seller sent, by U.S. mail, a warranty deed to the Buyers
  • The warranty deed recited that the tract was 50 acres “more or less”
  • The warranty deed also provided that the legal description of the tract was provided “without the benefit of a survey”
  • Buyers were concerned, as they should have been, about the deed
  • According to Buyers, after they received the deed, they had numerous conversations with the Seller which resulted in an oral modification of the terms of the written contract
  • According to Buyers, the oral modification was an agreement to extend the closing date until the Buyers had obtained a survey
  • The Seller denied that any such agreement modifying the written contract had been reached
  • The facts of the case strongly compelled the conclusion reached by the trial court: That the Seller’s version of events was not credible and that he had taken the position that the Buyers had breached by not closing on time only after he was able to obtain a contract for a significantly higher price for the tract from a third party

The Court of Appeals of Tennessee reversed the trial court. It did not challenge the trial court’s findings about the respective testimony of the litigants. It held that, since the alleged oral agreement changed the “essential terms” of the contract, it had to be in a writing which complied with the Statute of Frauds.

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In Tennessee will contest cases where wills are challenged on the basis of undue influence, outcomes are often difficult to predict and depend on the unique facts of each case. A recent Tennessee case proves that point. As the Court of Appeals of Tennessee noted when it affirmed the decision of the jury that there was no undue influence, there was evidence in the case to support that the will was the result of undue influence, but there was also evidence to support that it was not.

The proof at trial showed:

  • The maker of the will, a Elizabeth Jones (“Decedent”), was about 93 years old in 2010 when she changed a will she had made in 1985
  • In her 1985 will, the Decedent had left her assets, except for certain real property, to her nieces (who were the parties challenging the 2010 will)
  • In the 1985 will, the Decedent had left the real estate in question to her stepson
  • In her 2010 will, the Decedent left all of her assets to her stepson and disinherited her nieces
  • Stepson began living with the Decedent when he was 5 years old, and then moved next door to her with his wife in 1985
  • Decedent suffered a stroke in 1985, but her doctor testified that she was mentally competent and had no mental deficits from the stroke at the time Decedent executed her 2010 will
  • Stepson admitted that he assisted Decedent by cashing her checks, and taking her to doctors appointments
  • Stepson had a gate installed at Decedent’s house which he claimed he did to keep strangers from coming to her home when she was alone
  • A family friend testified that the Decedent was “always sharp-minded”
  • Another friend of Decedent testified that Decedent’s home smelled of urine and caused her to call the Tennessee Department of Human Services (“Department”)
  • An employee of the Department visited with Decedent and concluded that she was not being neglected
  • Another friend of the Decedent testified that Decedent had expressed to him that she wanted to make a new will and that, thereafter, he helped her obtain the will she executed in 2010 from Legal Zoom
  • The friend who helped Decedent with the 2010 will testified that, although she was frail, Decedent was still competent

The jury determined that there was no undue influence and upheld the validity of the 2010 will. The nieces appealed. The court of appeals affirmed the jury verdict. On the facts of this case, and considering the deference given to jury verdicts on appeal, that outcome was a foregone conclusion, in my opinion.

Setting aside a jury verdict in this will contest case would have required the court of appeals to conclude that there was no material evidence to support the jury’s verdict.

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In a recent breach of contract case involving a former employee who was promised 2.5% of the stock of the company which had employed him for twenty-six years, the Court of Appeals of Tennessee made some significant new law on the six year statute of limitations applicable to breach of contract actions.

The case is Powers v. A & W Supply, Inc., and here are the important facts:

  • In 1988, Mr. Powers became employed by A & W
  • In 1993, Mr. Powers and A & W signed an agreement whereby A & W promised Mr. Powers 2.5 % of the total number of issued and outstanding shares of A & W if he remained employed and in good standing with A & W until December 31, 2001
  • The agreement provided that A & W would execute and deliver the promised shares to Mr. Powers when they vested
  • Mr. Powers was still employed and in good standing with A & W as of December 31, 2001
  • No shares were issued to Mr. Powers on December 31, 2001, or ever
  • Mr. Powers was terminated from employment in October 2014
  • After being terminated, Mr. Powers asked about his shares and was told by A & W that it had never made him a shareholder and that the statute of limitations had expired on any breach of contract claim he had against A & W

The breach of contract statute of limitations which was applicable to Mr. Power’s claim was the six year statute. Under Tennessee law, the six year period begins to run when a party’s cause of action accrues.  A & W’s position was that Mr. Powers cause of action accrued on December 31, 2001, the date when his shares vested and on which he was supposed to receive the shares.  If A & W’s position was correct, then the six year statute did bar Mr. Power’s breach of contract claim.

The trial court held that Mr. Power’s breach of contract claim was not barred and the Court of Appeals affirmed. The Court of Appeals reasoned that a principle of equity was applicable:  “Equity regards that as done which in good conscience ought to be done.”  A corollary of this equitable maxim is: “No one can take advantage of his own wrong.”  The Court of Appeals, to reach the result which it reached, also recognized that Tennessee law does not require someone to have actual shares in order to have ownership in a corporation, and that a transfer of stock does not have to be memorialized in writing.

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For a former employee or contractor who has signed a non-competition agreement, the threshold question is quite often this: Is the non-compete agreement enforceable or not?

How Tennessee courts treat non-compete agreements varies by court and by the unique facts of each case. In my experience, there is quite a bit of subjectivity involved when a court undertakes to determine if a non-competition agreement is enforceable and, if so, to what extent.

Despite the reality that each non-compete case turns on its own facts and on the particular court making the ruling, there are some guidelines that any court must apply when ruling on a non-compete agreement. For employers and employees who want to understand those guidelines, a very good case to read is Vantage Technology, LLC v. Cross, a 1999 decision of the Court of Appeals of Tennessee.

Here is a summary of the facts of the case:

  • Cross (“Employee”) went to work for Vantage (“Employer”) in 1994
  • Employer was in the business of providing equipment and support to doctors who performed cataract surgeries in rural hospitals
  • Employee’s title was “technician” and his duties included transporting materials and instruments to doctors performing cataract surgeries and assisting them during surgery
  • An important part of Employee’s job was building relationships with doctors and learning about their surgical preferences
  • Employer also provided machines to doctors who performed cataract surgeries in rural hospitals, which machines were crucial for the surgeries
  • Employer provided Employee about 241 hours of training during his first month of employment
  • By the time Employee resigned, about two years after he started, he had built a strong relationship with a doctor who performed a substantial number of surgeries with the help of Employer
  • Employee resigned and immediately formed a business relationship with that physician whereby they started a company which competed with Employer
  • Employer filed suit against the Employee alleging that he had breached the non-compete agreement

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Spouses, children and parents, or other persons, who may be heirs of each other, sometimes die because of common accidents or disasters. As well, even in the absence of a common disaster or accident, sometimes spouses die within a short time of each other.  When those tragic events or nearly contemporaneous deaths occur, the Tennessee Uniform Simultaneous Death Act may be applicable.

Under the Act, the operative time period is 120 hours, or 5 days. If a spouse dies within 120 hours of his or her wife or husband, then, that spouse is deemed to have predeceased the other spouse for purposes of receiving homestead allowance, year’s support allowance, exempt property, and elective share.  The presumption also applies, importantly, for purposes of determining who the heirs are when the spouse who died first died without a will (when someone dies without a will, his or her property is distributed according to the laws of intestate succession).

Here is an example of how the Act would apply in a situation where the spouse who died first died without a will: Husband and Wife were married late in life and each has a child by another marriage who is not the child of the other spouse. Wife has an investment account worth $300,000 which she, alone, owns. As well, Wife has made no payable on death or survivorship designation on the account. Neither Husband nor Wife has a will.

Husband and Wife are in an accident. Wife dies at the scene of the accident and Husband dies two days later.  If not for the Act, Husband’s child would inherit one-half of Wife’s account, or $150,000. This is so because, under Tennessee intestate succession law, Husband would be entitled to one-half of the $300,000, and Wife’s child would be entitled to the other one-half.

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In condemnation cases, it is understandable that a landowner would want a jury to be able to consider the value of the landowner’s property based on its highest and best use. For example, if the landowner’s property is uniquely situated such that a party wanting to construct a hotel on it would likely pay significantly more for it than any other buyer, the landowner would probably do better at trial if an expert appraiser was able to base his or her valuation on the amount that a buyer wanting to construct a hotel on it would pay for the property.  While such an approach to valuation would certainly favor a landowner in many cases, under Tennessee condemnation law, such an approach is not allowed. That has long been the rule in Tennessee eminent domain cases.

To see how this rule can play out to the detriment of a landowner, consider the recent case of Ocoee Utility District of Bradley and Polk Counties v. The Wildwood Company, Inc. (Sept. 2016).  Here are the key facts:

  • The Landowners owned land with springs which could provide a water source for the condemning authority, the Utility District
  • The Utility District’s appraiser had appraised the property being taken at $21,500
  • The Utility District offered to buy the property for $35,000
  • The Landowners retained, as an expert witness, a commercial appraiser who valued the property at $417,000
  • To arrive at the $417,000 figure, the appraiser testified, in his deposition, that the highest and best use of the property was for the sale of water and that his valuation involved an analysis of the income which could be generated from the sale of water from the property
  • The expert appraiser testified that he based his valuation of fair market value on the rental income that the Landowners could generate by leasing the water rights and acknowledged that his “rental rate is based on water.”
  • The appraiser also testified that his value was based on what rate the Utility District was willing to pay for the water rights
  • The jury returned a verdict for the Landowners in the amount of $417,000

The Court of Appeals of Tennessee set aside the jury verdict. It held that the testimony of the Landowners’ appraiser should have been excluded at trial.

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Under Tennessee law, if an insurance company denies a claim, it can be subject to a bad faith failure to pay penalty. The maximum amount of the penalty is 25% of the claim amount which the insurance company should have paid.  Moreover, the penalty does not apply unless the refusal of the insurance company to pay the claim was not in good faith, or, in other words, in bad faith.

In bad faith failure to pay cases, whether or not there was bad faith is a jury question so long as there is any evidence of bad faith. Even though it is the province of the jury to decide whether the insurance company has acted in bad faith, and, consequently, whether the insurance company should have to pay the bad faith penalty, it is not uncommon for the Court of Appeals of Tennessee to set aside a jury’s finding that an insurance company acted in bad faith.  Discussed below are three bad faith failure to pay cases where a judge’s or jury’s award of bad faith damages was upheld on appeal and one case where a jury’s finding of bad faith was reversed.

Palatine Ins. Co. v. E. K. Hardison Seed Co., (Tenn. Ct. App. 1957):  In this case, the court of appeals upheld the jury’s determination that the insurance company had acted in bad faith for failing to pay a claim for the theft of a truck.  The insurance company denied the claim on the grounds that the policy was not a fixed value policy, but an actual cash value policy which required an appraisal. Several months after the loss, and after the plaintiff had reported it, the plaintiff wrote the insurance company asking for payment. Several weeks after that, the insurance company wrote the plaintiff demanding an appraisal and stating that it could not accept the plaintiff’s proof of loss because of Plaintiff’s failure to provide minor details related to the claim and of which the insurance company should have been aware.  The court of appeals upheld the jury’s imposition of the bad faith penalty finding that the policy was a fixed value policy and because there “was substantial evidence” on which a jury could find bad faith.

Minton v. Tenn. Farmers Mut. Ins. Co., (Tenn. Ct. App. 1992): In this bad faith failure to pay case, the court of appeals upheld the trial court’s finding of bad faith where a diamond ring was lost in the mail when its owner, the plaintiff, mailed it to be repaired.  The insurance company denied the claim based on an exclusion in the policy for losses resulting from neglect of the insured.  The plaintiff admitted that she did not mail the ring by certified mail or purchase postal insurance.  The trial court found bad faith because the policy did not contain any prohibition against mailing the ring as the plaintiff had done.

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It happens with some frequency in Tennessee that a check is written and notated “paid in full” or “payment in full.” Sometimes, if a check is not written “paid in full,” the business which owes the debt may send an accompanying letter stating that the payment is for the full amount of the account or debt.  Sometimes, when the debtor is very prudent, it so notates the check and also sends such a letter with the check.

Under Tennessee common law, as well as under a Tennessee statute, T.C.A. §47-3-311, if a person or business owed money (a creditor), cashes a check marked “paid in full” or with similar language, or cashes a check sent with a letter stating that the payment is in full satisfaction of the debt, that creditor may well be barred from collecting any additional money.

In Tennessee breach of contract cases, a party who proves an accord and satisfaction is relieved of further liability to the creditor. To prove successfully an accord and satisfaction, the debtor must prove that the amount it owed the creditor was disputed; it sent a check conspicuously marked “paid in full,” or with other language establishing that the payment was in full satisfaction of the debt, or sent the check with a letter indicating that the payment was in full satisfaction of the alleged debt; and, that the creditor cashed the check.

For an example of a breach of contract case where an accord and satisfaction defense was successful, take a look at Pendergrass v. Ingram (Tenn. Ct. App. 2016).  Here are the basic facts of that case:

  • Plaintiffs agreed to do certain grading and other work on Defendant’s property
  • The parties orally agreed that Plaintiffs would be paid $2,500
  • Plaintiffs were paid $1,000 up front
  • After the Plaintiffs began working, the Plaintiffs performed additional work beyond the work to which the parties had agreed
  • The parties never discussed what Plaintiffs would be paid for the additional work
  • After the work was finished, the Plaintiffs sent Defendant a bill for $9,073
  • Defendant let the Plaintiffs know that he did not believe he owed more than $1,500
  • The Defendant then sent Plaintiffs a check for $1,500 with the notation “pd. in full”
  • The Plaintiffs marked through the “pd. in full” notation on the check and cashed it

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When real estate is sold at auction in Tennessee, what rights do the seller and highest bidder have after the hammer falls? Can the seller back out of the sale?  What are the chances that the highest bidder can win a case for specific performance if the seller tries to back out of the sale?

An excellent case to read to gain a basic understanding of real estate auction law in Tennessee is Cunningham v. Lester (Tenn. Ct. App. 2003). Here are the basic facts of that case:

  • The Lester’s were a husband and wife who owned some real estate jointly
  • the Lester’s signed a contract with an auction company to sell their property at auction
  • the brochures prepared by the auction company to advertise the auction sale did not state that the sale was being made with reserve
  • prior to the commencement of the auction sale, the auctioneer announced that the land offered was “with reserve” and that the Lester’s had to confirm any bids
  • Mr. Cunningham was the highest bidder for tracts 4 and 5
  • Mr. Neal was the highest bidder for tract 3
  • After the fall of the hammer, a written contract for the sale of tracts 4 and 5 to Mr. Cunningham was signed by Mr. Lester, the auctioneer, and Mr. Cunningham, but not by Mrs. Lester
  • Mr. Cunningham agreed to take over Mr. Neal’s bid for tract 3
  • a contract for the sale of tract 3 was signed by Mr. Cunningham, and Mr. Lester, but not by Mrs. Lester or the auctioneer
  • Mr. Cunningham paid the required earnest money for all three tracts
  • Prior to the closing, the auctioneer told Mr. Cunningham that the Lester’s would not close on any of the tracts
  • Mr. Cunningham filed a lawsuit for specific performance requesting that the court order the Lester’s to convey all three tracts under the terms in the written contracts

The trial court, which was affirmed in all respects by the Court of Appeals of Tennessee, held that the Lester’s were required to convey tracts 4 and 5 to Mr. Cunningham, but that they were not required to convey tract 3.

The first point of law to know in order to understand the court’s decision in the case is that an auctioneer with whom a seller has signed a contract basically becomes an agent of the seller. The court in the Cunningham case held that the Lester’s did have the right, which they had reserved, to refuse a bid.   However, when the auctioneer signed the contract for tracts 4 and 5, since he was the agent of the Lester’s, the Lester’s were bound by his signature.  It did not matter that Mrs. Lester never signed that contract.

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It happens that marriages occur, but children of one of the marrying spouses are not adopted by the other spouse. It also happens that these children are treated by the non-adopting spouse just like his or her own children despite never being formally adopted.  So, what are the rights of children in such situations to the assets of the man or woman who, for all practical purposes, became their mother or father, when that man or woman who was not their natural parent and who never officially adopted them passes away?

The answer to the above question depends on, at least, several factors. If the deceased non-natural parent died without a will and did not leave any assets via a joint account, payable on death or other account beneficiary designation (non-probate assets), then the never-adopted child is out of luck. Under Tennessee probate law, when a person dies without a will, the only children who may inherit are natural children and adopted children.  That’s it. No exceptions.

If, however, the non-natural parent who died left assets payable on death (non-probate assets) to his or her “children,” it is quite possible that a person the deceased considered and treated like a child, even though that person was never formally adopted, might share in those assets. In the case of In re Estate of Elrod (Tenn. Ct. App. 2015), that very outcome occurred.

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