Session April 18, 2018
from the Chancery Court for Sevier County No. 17-1-002
Telford E. Forgety, Jr., Chancellor
action involves a long-term ground lease in which the
defendant lessee paid for and maintained an insurance policy
on the property for its benefit. The defendant surrendered
the premises after the motel facility constructed on the land
was destroyed by a wildfire before the expiration of the
lease. The plaintiff lessor filed suit, seeking an equitable
lien on the policy and its proceeds, a constructive trust
against the insurance rights and recovery, a claim on the
policy as a third-party beneficiary, and injunctive relief.
The court granted summary judgment in favor of the defendant.
R. App. P. 3 Appeal as of Right; Judgment of the Chancery
Louis Crossley, Jr., Knoxville, Tennessee, for the appellant,
Johnson Real Estate Limited Partnership.
T. Hill, Knoxville, Tennessee, for the appellees, Vacation
Development Corp. and Hugh D. Faust, III.
W. McClarty, J., delivered the opinion of the Court, in which
D. Michael Swiney, C.J. and Richard H. Dinkins, J., joined.
W. McCLARTY, JUDGE
long-term ground lease at issue was between Johnson Real
Estate Limited Partnership ("Plaintiff") and
Vacation Development Corporation ("Defendant") for
four acres of land located on River Road in Gatlinburg,
Tennessee. The lease provided a term of 50 years, beginning
on October 15, 1969, and ending on October 15, 2019. As
pertinent to this appeal, the lease required Defendant to
construct "modern motel facilities at a cost of not less
than [$500, 000]" within 18 months of the date of the
agreement and to remit payment of $15, 000 on the date of the
execution of the lease and $20, 000 per year, plus 7 percent
of the gross receipts exceeding the sum of $20, 000. The
lease further provided that at the "termination or
cancellation of [the agreement] all improvements thereon
shall become the property of the Lessor." The Parties
were not required to carry property insurance; however,
Defendant was required to carry public liability insurance
and to pay all taxes, utilities, license fees, and expenses
of "every kind and nature incident to the use of said
premises." Defendant constructed the motel facilities,
which became known as the Riverhouse Motor Lodge ("the
Motel"). Since that time, the original Lessors assigned
their interests to Plaintiff.
insured the Motel and another of its properties under a
single commercial insurance policy obtained through Travelers
Indemnity Company of America ("Insurance Company").
Defendant paid all premiums for the policy that covered both
facilities with a policy limit of $8, 122, 974.
Motel was destroyed by the Gatlinburg wildfires in November
2016. Defendant advised Plaintiff that it would not rebuild
the Motel unless Plaintiff entered into a new 50-year lease
on the same terms as the current lease, with the exception
that the new lease would include an insurance provision.
Plaintiff filed suit against Defendant and Insurance Company
for anticipatory breach of the agreement. Plaintiff sought an
equitable lien on the insurance policy and its proceeds, a
constructive trust against the insurance rights and recovery,
a claim on the policy as a third-party beneficiary, and
injunctive relief. Thereafter, Defendant notified Plaintiff
of its surrender of the property and termination of the lease
via letter, dated March 17, 2017, which provided as follows:
As you know, [the Motel] constructed by [Defendant] on the
real property owned by [Plaintiff] on River Road in
Gatlinburg, Tennessee was totally destroyed by fire on
November 28, 2016. Accordingly, and pursuant to the
provisions of [Tennessee Code Annotated section 66-7-102],
[Defendant] hereby surrenders possession of the real property