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Williams v. Larry Stovesand Lincoln Mercury Inc.

Court of Appeals of Tennessee, Nashville

October 15, 2014

PHYLLIS WILLIAMS
v.
LARRY STOVESAND LINCOLN MERCURY, INC., ET AL.

Session September 16, 2014

Appeal from the Chancery Court for Davidson County No. 12586I Claudia C. Bonnyman, Chancellor

Thomas B. Russell, Nashville, Tennessee, for the appellants, Larry Stovesand Lincoln Mercury, Inc., and Paducah Ford, Inc., d/b/a Paducah Ford Lincoln Mercury, Inc.

F. Dulin Kelly and Clinton L. Kelly, Hendersonville, Tennessee, for the appellee, Phyllis Williams.

J. Steven Stafford, P.J., W.S., delivered the opinion of the Court, in which John W. McClarty, J., and Brandon O. Gibson, J., joined.

OPINION

J. STEVEN STAFFORD, JUDGE

Background[1]

In 1980, Ms. Phyllis Williams ("Ms. Williams" or "Appellee") and her late husband Bob Williams opened Riverside Lincoln-Mercury ("Riverside") in Madison, Tennessee. In 1987, Ford Motor Credit made a loan to Mr. and Mrs. Williams. In 1993, Mr. Williams died, and Ms. Williams became President of Riverside. The Ford Motor Credit loan made in 1987 was modified several times between 1987 and 2004. In 2004, Ms. Williams was making installment payments on the loan in the amount of approximately $20, 000.00 per month.

In 2004, Larry Stovesand operated an automobile dealership in Paducah, Kentucky. One of his businesses was Paducah Ford-Lincoln-Mercury, Inc. ("Paducah Ford"). At this time, Ms. Williams was in her 70s and testified that owning a car dealership was "getting harder for us to do, " especially in light of the $20, 000.00 monthly payment on the Ford Motor Credit loan. Since Mr. Stovesand was interested in buying a dealership in the Nashville area, he contacted Ms. Williams about buying the assets of Riverside.

In late summer 2004, Mr. Stovesand registered Larry Stovesand Lincoln Mercury, Inc. ("Stovesand Lincoln, " collectively with Paducah Ford, "Appellants") as a business in Tennessee. Registering Stovesand Lincoln in Tennessee allowed Mr. Stovesand to operate a car dealership in Tennessee once he had purchased Riverside's assets.

On September 2, 2004, Riverside and Paducah Ford entered into an Asset Purchase Agreement ("Original Asset Purchase Agreement"). The Original Asset Purchase Agreement allowed Paducah Ford to purchase the tangible personal property owned by Riverside, including new and used vehicles, parts, accessories, machinery, shop equipment, and furniture. It is undisputed that, in the Original Asset Purchase Agreement, Paducah Ford purchased Riverside's fixed assets for $315, 145.00 and its goodwill for $1, 180, 000.00. Paducah Ford agreed to pay all but $680, 000.00 of the purchase price at closing. Paducah Ford agreed to pay the remaining $680, 000.00 in two promissory notes. The first note was for $500, 000.00 and was to be paid over a five year period. The second note was for $180, 000.00 to be paid over three years. The Original Asset Purchase Agreement did not include a sale of the real property, and Ms. Williams remained the owner of the real property. During the execution of the Original Asset Purchase Agreement and all of the subsequent amendments, both parties were represented by counsel.

Although Ms. Williams owned the real property upon which Riverside was located, she had previously entered into a lease with Ford Leasing Development Company ("Ford Leasing") regarding the use of the real property, presumably to operate a Ford dealership .[2]However, pursuant to the Original Asset Purchase Agreement, Ford Leasing entered into a sublease with Paducah Ford. Paducah Ford was required to make the $20, 800.00 sublease payments directly to Ms. Williams under this agreement. Once Ms. Williams received the sublease rent, she then paid Ford Credit for her and her late husband's loan. Eventually, in December 2006, Ms. Williams sought Ford Leasing's permission for Stovesand Lincoln to remit the rental payments directly to Ford Leasing. From this point on, Stovesand Lincoln sent the $20, 800.00 per month sublease rent payments directly to Ford Leasing. The sublease was for a period of nine years.

Despite the existing Original Asset Purchase Agreement, the parties continued to negotiate aspects of their agreement. On September 29, 2004, the parties executed the First Amendment to the Asset Purchase Agreement ("First Amendment"). The First Amendment reduced the purchase price of the fixed assets from $315, 145.00 to $115, 000.00.[3]

On October 6, 2004, the parties executed the Second Amendment to the Asset Purchase Agreement ("Second Amendment"). In the Second Amendment, Paducah Ford allegedly agreed to pay Riverside an additional $482, 400.00 as additional compensation for goodwill. The Second Amendment purports to allow payment of this "Additional GoodWill Purchase Price" in thirty-six monthly payments of $4, 200.00 and then in thirty-six monthly payments of $9, 200.00. The Second Amendment provides that these "payment obligations shall be set forth in a promissory note containing mutually agreeable terms." Further, in an option-to-purchase clause contained in the Second Amendment, the parties agree that "[t]he note shall also provide that it shall terminate on the date the Real Estate is sold to [Paducah Ford] . . . and that no sums which come due after the note terminates shall be owed to Seller."

Pursuant to the Second Amendment, Mr. Stovesand, on behalf of Stovesand Lincoln, executed a document titled "Promissory Note"[4] on November 19, 2004. The Promissory Note purports to secure payment for the additional goodwill purchased pursuant to the Second Amendment. The Promissory Note indicates that the principal amount is $482, 000.00. The Promissory Note refers to Stovesand Lincoln as the "Maker, " refers to Riverside as the "Lender" and "Holder, " and provides a promise to pay to the order of Riverside. Similar to the Second Amendment, the Promissory Note also provides that, "Upon the closing on the Sale of Real Estate, this Note shall be deemed to be null and void as to all payments which are scheduled to come due after the date of said closing." In effect, this clause provided Stovesand Lincoln with an option to purchase the real estate that it would operate on. However, if Stovesand Lincoln chose not to exercise the option to purchase, the Promissory Note provided that Stovesand Lincoln remained obligated to pay monthly installment payments on the Promissory Note. Simultaneous with the Promissory Note, Mr. Stovesand executed an unlimited irrevocable guaranty on behalf of Paducah Ford, a limited irrevocable guaranty on behalf of himself individually, and a security agreement on behalf of Stovesand Lincoln. The Promissory Note indicated that payment was to begin on December 1, 2007.

Riverside issued a Bill of Sale on November 19, 2004. The Bill of Sale listed the fixed assets ($115, 000.00), goodwill ($1, 180, 000.00), note for goodwill ($500, 000.00), and note for goodwill ($180, 000.00). Stovesand Lincoln paid $680, 000.00 at closing for the goodwill, but the remainder was covered by the notes. However, the $482, 000.00 Promissory Note for additional good will (pursuant to the Second Amendment) was not listed on the Bill of Sale.

At the end of the first three years specified for repayment of the Promissory Note, Stovesand Lincoln had not exercised its option to purchase the real estate and thereby terminate its payment obligation. Stovesand Lincoln began paying $4, 200.00 per month during the third through sixth years pursuant to its obligation under the Promissory Note. Again, at the end of the sixth year, Stovesand Lincoln had not exercised its option to purchase the real estate, and it began paying $9, 200.00 per month on the Promissory Note pursuant to its terms.

As of 2011, Stovesand Lincoln was making two payments. The first payment was $20, 800.00 per month to Ford Credit for the sublease of the real property. The second payment was $9, 200.00 on the Promissory Note payable to Riverside. Later in 2011, Ford[5]informed Mr. Stovesand that it only wanted one Lincoln dealership in the Nashville area. Accordingly, Mr. Stovesand was forced to close Stovesand Lincoln on July 31, 2011. However, Stovesand Lincoln never exercised its option to purchase the real estate.

After Stovesand Lincoln closed, it stopped paying the $20, 800.00 monthly payments to Ford Credit under its sublease agreement. Shortly thereafter, on August 1, 2011, Stovesand Lincoln also stopped paying $9, 200.00 per month to Riverside pursuant to the Promissory Note. On September 20, 2011, Ms. Williams's attorney made a formal demand for Stovesand Lincoln to cure its alleged default within thirty days. Stovesand Lincoln made no further payments.[6]

On April 18, 2012, Ms. Williams brought this action against Mr. Stovesand's two automotive dealerships, Stovesand Lincoln and Paducah Ford, to collect on the Promissory Note that was made pursuant to the Second Amendment. On February 12, 2013, Ms. Williams moved for summary judgment. She included a Rule 56.03 statement of undisputed facts in support of her motion. The only note at issue in this appeal is the Promissory Note that was executed pursuant to the Second Amendment. In their response to Ms. Williams's motion for summary judgment, Appellants argued that a dispute of a material fact existed and that Ms. Williams would have difficulty proving an essential element of her claim—namely, that the $482, 400.00 promissory note was for the purchase of goodwill and not for rent. After hearing, the trial court granted summary judgment in favor of Ms. Williams. Declining to "create an ambiguity where none exists in the contract, " the trial court found that the contract was indeed a promissory note, and Appellants were in default. The trial court stated that the disputes of fact raised by Appellants were not material to the meaning of the plain and ordinary contract terms. In light of "no written modification indicating that the [] contract was intended to be for rent instead of a promissory note, " the court granted summary judgment in favor of Ms. Williams.

Issue

Stovesand Lincoln and Paducah Ford filed a timely appeal, raising one issue for review, which is taken from their brief: "Whether the trial court erred by granting summary judgment in favor of Phyllis Williams and finding that a $482, 400.00 Note was a ...


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