Tennessee Business Litigation Lawyers Blog

“As Is” Contracts and the Mutual Mistake Defense

Published on: July 16, 2016 | by J. Ross Pepper

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.

Using the Doctrine of Equitable Estoppel to Defeat a Statute of Limitations Defense

Published on: June 25, 2016 | by J. Ross Pepper

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.

Recovering Life Insurance Policy Benefits in Tennessee When the Life Insurance Company Denies Payment for Alleged Misrepresentations

Published on: June 8, 2016 | by J. Ross Pepper

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.

Recovering Payment for Expenses or Services Provided for a Deceased

Published on: May 29, 2016 | by J. Ross Pepper

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.

Using Quantum Meruit to Recover in Tennessee

Published on: May 22, 2016 | by J. Ross Pepper

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.

Litigating Contracts with “No Oral Modification” Clauses

Published on: May 7, 2016 | by J. Ross Pepper

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

Recovering Attorney’s Fees in Tennessee Partition Cases

Published on: April 28, 2016 | by J. Ross Pepper

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.

Business Court Ruling Expands Fiduciary Duties of LLC Members

Published on: April 14, 2016 | by J. Ross Pepper

A recent ruling from the Davidson County, Tennessee Business Court in a breach of fiduciary duty case has expanded the scope of fiduciary duties owed by LLC members to other LLC members. Under Tennessee law, it is, and has been for many years, well-established that shareholders in corporations and partners in partnerships owe fiduciary duties to each other, and not just to the corporation or partnership.

Whether LLC members even owe other members fiduciary duties, and, if so, what fiduciary duties LLC members owe to one another have been unclear. The Business Court’s recent opinion has helped to clarify the matter of the duties owed by LLC members to other LLC members.

Limited liability companies, a form of business entity which is, relatively speaking, fairly new, are designed to incorporate the best features of corporations and partnerships. Tennessee has a comprehensive set of laws regarding LLCs which are found in the Tennessee Revised Limited Liability Company Act (the “Act”), T.C.A. §48-249-101.

Section 48-249-403 of the Act deals with the fiduciary duties of LLC members and managers, and limits the fiduciary duties of LLC members and managers. Moreover, some Tennessee case law, which was decided before the enactment of the Revised Tennessee LLC Act, held that LLC members did not owe each other fiduciary duties. Continue reading

Statutes of Limitations in Tennessee Breach of Contract Cases: An Overview of the Basics

Published on: March 26, 2016 | by J. Ross Pepper

Step One: Determining Which Statute of Limitations Applies

The Six Year Statute of Limitations Applies Most of the Time

Most breach of contract cases in Tennessee will be subject to the six (6) year statute of limitations codified at T.C.A. §28-3-109. There is one (1) other possible statute of limitations which could apply in a breach of contract case which would require someone to file suit in less than six (6) years. There is another statute of limitations which might allow a period longer than six (6) years. Lastly, there is the possibility that none of the statutes of limitations codified in Tennessee apply because the parties have contractually agreed to a limitations period.

The Four Year Statute of Limitations for UCC Cases

If the breach of contract is for the sale of goods, the Uniform Commercial Code (“UCC”) will apply. The statute of limitations for any contract for the sale of goods under the UCC is four (4) years. T.C.A. §47-2-725

The Ten Year Statute of Limitations for Demand Notes

In Tennessee, demand notes are subject to a ten (10) year statute of limitations. T.C.A. §28-3-109

Contractually Agreed to Limitations Periods May Be Shorter Than Four Years, Six Years, or Ten Years, and Are Enforceable in Tennessee

In many breach of contract cases, particularly insurance policy breach of contract cases and disability insurance policy cases, a statute of limitations placed in the parties’ contract will govern. Even if the six (6) year statute of limitations might otherwise apply, a breach of contract case might have to be filed much sooner in order not to be barred by a shorter limitations period which was agreed to by the parties. Such contractual statutes of limitations are fully enforceable in Tennessee, and trump the statutes of limitations in the Tennessee Code. Under Tennessee law, a contractually agreed to limitations period for filing a lawsuit is enforceable so long as it provides a “reasonable time period” for filing a lawsuit. One Tennessee court upheld a contractually agreed to limitations period of sixty (60) days. See, Morgan v. Town of Tellico Plains (Tenn. Ct. App. 2002). Another upheld a contractually agreed to limitations period of one (1) year. See, Certain Underwriters at Lloyd’s of London v. Transcarriers, Inc. (Tenn. Ct. App. 2002). Continue reading

Valuing Residential Property Which Has Commercial Potential in Tennessee Condemnation Cases

Published on: March 21, 2016 | by J. Ross Pepper

In Tennessee eminent domain cases, also referred to as condemnation cases, it occurs sometimes that the governmental authority seeks to take property which is currently used and zoned as residential, but which has the potential for commercial development. It is also frequently the case that the property has a substantially higher value as commercial property than as residential property.

In such cases, where the property is zoned residential, but has the potential for re-zoning to commercial and for commercial development, is the landowner stuck with the value of the property as residential property? The answer to that question is no.

A property owner in Tennessee whose property is subject to a condemnation case may well be able to recover the commercial value of the property rather than just the residential value of the property. This is so even if the property is zoned residential at the time of the taking.

Here are summaries of three cases that are helpful if you are in a condemnation case and believe that your residential property has the potential to be rezoned for commercial use. Continue reading