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Keck v. Meek

Court of Appeals of Tennessee, Knoxville

June 28, 2018


          Session April 19, 2018

          Appeal from the Chancery Court for Union County No. 6846 Elizabeth C. Asbury, Chancellor

         This case involves a contract dispute concerning four simultaneously executed agreements that, if completed, would have essentially constituted a trade of two parcels of improved real property. The plaintiff buyers entered into the four agreements with the defendant sellers on October 1, 2013, giving the buyers a lease on the sellers' property, located on Walnut Breeze Lane in Knoxville, Tennessee (the "Walnut Breeze Property"), with an option to purchase that property in the unspecified future. The buyers agreed to trade equity in their own property, located on First Street in Corryton, Tennessee ("First Street Property"), as partial payment for the Walnut Breeze Property if they chose to exercise the option. On January 6, 2014, the parties met for a "closing," and the buyers conveyed title to the First Street Property to the sellers. However, the "REAL ESTATE SALES CONTRACT" related to the Walnut Breeze Property stipulated that the transfer of title to the Walnut Breeze Property was subject to the existing mortgagee's approval, which neither party had obtained. The buyers continued to reside at the Walnut Breeze Property, making monthly payments to the sellers until a year later when the buyers vacated the Walnut Breeze Property and stopped making payments. The sellers sent the buyers a notice to vacate three months later. In November 2016, the buyers filed a complaint in the Union County Chancery Court ("trial court"), claiming breach of contract, unjust enrichment, and fraud. The buyers requested $75, 000 in compensatory damages, $150, 000 in punitive damages, return of the First Street Property, and reasonable attorney's fees. The sellers filed an answer and subsequent amended answer, denying all substantive allegations and raising affirmative defenses. The sellers concomitantly filed a counterclaim, asserting, inter alia, that the buyers had breached the lease agreement and requesting an award of unpaid rent and reasonable attorney's fees. Following a bench trial, the trial court found that the buyers breached the terms of the lease agreement by withholding payments on the Walnut Breeze Property for three months. The trial court also found that the buyers had exercised their option to purchase the Walnut Breeze Property by signing over title to the First Street Property but that the sellers knew at that time that the buyers could not satisfy the financing condition of the sale. The trial court awarded to the buyers the equity value of the First Street Property as stipulated in the sales agreement concerning that property, minus the value of three months' unpaid rent, which the trial court awarded to the sellers. The trial court denied the parties' respective requests for attorney's fees. The sellers have appealed. Having determined that each party is entitled to some award of attorney's fees under the overarching contract, we reverse the trial court's denial of attorney's fees and remand for a determination of the respective attorney's fee awards. We affirm the trial court's judgment in all other respects.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in Part, Reversed in Part; Case Remanded

          Lewis S. Howard, Jr., and Erin J. Wallen, Knoxville, Tennessee, for the appellants, E.G. Meek, Sr., and Shirley T. Meek.

          Danny C. Garland, II, Knoxville, Tennessee, for the appellees, Shawn L. Keck and Marcella H. Keck.

          Thomas R. Frierson, II, J., delivered the opinion of the court, in which Charles D. Susano, Jr., and John W. McClarty, JJ., joined.



         I. Factual and Procedural Background

         The facts underlying the execution of the four agreements at issue are essentially undisputed. At the time that the plaintiffs, Shawn L. Keck and Marcella H. Keck (collectively, "the Kecks"), entered into the agreements with the defendants, E.G. Meek, Sr., and Shirley T. Meek (collectively, "the Meeks"), the Kecks held title to the First Street Property with a corresponding mortgage balance of approximately $14, 700 owed to Superior Finance. Having known Mr. Meek for some time prior to the instant transaction, the Kecks sought out Mr. Meek in the fall of 2013 for the purpose of selling their First Street Property. The Kecks also wished to purchase a new home through Mr. Meek, who was a licensed real estate agent and owner of GM Properties & Auction Company, but the Kecks' credit history posed a problem with any purchase.

         To facilitate a purchase, Mr. Meek suggested utilizing the Walnut Breeze Property in conveying to the Kecks a lease with an option to buy. On October 1, 2013, the Kecks and Mr. Meek simultaneously executed four documents.[1] Mr. Meek drafted the documents, which appear to have been originally in "boilerplate" format with handwritten changes and additions.

         The first document, entitled, "Tennessee Residential Lease Agreement" ("Lease Agreement"), conveys a one-year lease of the Walnut Breeze Property to the Kecks. The rent amount is established at $544 due every two weeks, with expiration of the Lease Agreement set for October 1, 2014. The Lease Agreement further provides the following in pertinent part:

5. CONDITIONS OF PREMISES. Tenant stipulates, represents and warrants that Tenant has examined the Premises, and that they are at the time of this Lease in good order, repair, and in a safe, clean and tenantable condition.
** *
11. MAINTENANCE AND REPAIR; RULES. Tenant will, at its sole expense, keep and maintain the Premises and appurtenances in good and sanitary condition and repair during the term of this Agreement and any renewal thereof. . . .
** *
15. TENANT'S HOLD OVER. If Tenant remains in possession of the Premises with the consent of Landlord after the natural expiration of this Agreement, a new tenancy from month-to-month shall be created between Landlord and Tenant which shall be subject to all of the terms and conditions hereof except that rent shall then be due and owing at Contract Pending/Closing on Later Date . . . and except that such tenancy shall be terminable upon fifteen (15) days written notice served by either party.
** *
20. DEFAULT. . . . If Tenant fails to pay rent when due and the default continues for seven (7) days thereafter, Landlord may, at Landlord's option, declare the entire balance of rent payable hereunder to be immediately due and payable and may exercise any and all rights and remedies available to Landlord at law or in equity or may immediately terminate this Agreement.
21. LATE CHARGE. In the event that any payment required to be paid by Tenant hereunder is not made within 7 days of when due, Tenant shall pay to Landlord, in addition to such payment or other charges due hereunder, a "late fee" in the amount of Fifty-Four and 40 Dollars ($54.40).
22. ABANDONMENT. If at any time during the term of this Agreement Tenant abandons the Premises or any part thereof, Landlord may, at Landlord's option, obtain possession of the Premises in the manner provided by law, and without becoming liable to Tenant for damages or for any payment of any kind whatever. . . .
23. ATTORNEYS' FEES. Should it become necessary for Landlord to employ an attorney to enforce any of the conditions or covenants hereof, including the collection of rentals or gaining possession of the Premises, Tenant agrees to pay all expenses so incurred, including a reasonable attorneys' fee.
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31. MODIFICATION. The parties hereby agree that this document contains the entire agreement between the parties and this Agreement shall not be modified, changed, altered or amended in any way except through a written amendment signed by all of the parties hereto.
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This lease is made w/ Contract for a closing date to be agreed upon by the parties. Contract governing this agreement has been executed and conditions of such shall govern closing date.

         The second agreement, entitled, "REAL ESTATE SALES CONTRACT" ("Real Estate Contract"), provides for the sale of the Walnut Breeze Property from the Meeks to the Kecks for a purchase price of $130, 000. The Real Estate Contract includes the following pertinent provisions:

PRICE AND TERMS 3. Buyer(s) [the Kecks] agree to pay One Hundred & Thirty Thousand dollars ($130, 000.00) for this property in the following manner:
Financed with an Owner Financed Through Contract for deed at time lease option purchase is exercised. Closing date not determined @ time of contract, but to be done ASAP - Subject to transfer meeting the approval of Home Federal Bank. An affidavit, if required, and recorded in Register's Office Knox Co. TN. if such seem necessary for the notice of intentions are required to be public record.
EARNEST MONEY DEPOSIT 4. Buyer(s) [the Kecks] has given to [the Meeks], hereinafter called Agent, Thirty Thousand and see Addendum for additional (30, 000.00), House Trade Allowance and less balance to Superior finance for house & lot . . . as an earnest money deposit to be credited against the payment of the purchase price, and as a guarantee of specific performance.
* * *
MORTGAGE 12. The purchase price or contract price is to be fully paid in cash, when and if the mortgage loan referred to herein is approved and closed. If this loan is not approved for the amount applied for, this contract can be cancelled by the Buyer(s) [the Kecks] and the earnest money will be returned. The Buyer(s) agrees to immediately apply for the necessary mortgage loan to conclude this contract and will furnish all necessary information or documents as required for the approval of this loan. The Buyer(s) agrees to execute mortgage documents when the loan is ready to close and the terms of this contract have been carried out.
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CONTRACT PERFORMANCE 14. Time is of the essence of this contract. Should the Buyer(s) [the Kecks] fail to perform the covenants herein contained within the time specified, Seller(s) [the Meeks] shall have the right to pursue any and all remedies available to Seller(s) at law or in equity, including, without limitation, requiring specific performance on the part of Buyer(s), and retaining as liquidated damages all sums which have theretofore been paid to the Seller(s) or the Agent by the Buyer(s).
If the Seller(s) defaults in the performance of this contract, Buyer(s) may reclaim the earnest money deposit and pursue any and all remedies available at law.
In the event legal action is instituted by the Agent, or any party to this contract, to enforce the terms of this contract or arising out of the execution of this contract or the sale, or to collect commissions, the prevailing party shall be entitled to receive from the other party all costs of enforcing this agreement, including a reasonable attorney fee.
** *
CONDITION OF PROPERTY 18. Buyer(s) agree to accept this property in its "AS IS" condition under the terms of this paragraph unless otherwise specified. . . .

         The third agreement, entitled, "ADDENDUM NO. 1 TO REAL ESTATE PURCHASE CONTRACT" ("Addendum"), incorporates an additional term into the Real Estate Contract.[2] The Addendum provides in handwritten language:

A lease option contract which shall be considered a prelimanary [sic] contract as part of this sales contract for the purpose of buyer receiving principle [sic] credit on all payments made under the lease/option contract as if the Contract to purchase had been completed and ammortization [sic] had been based upon approx. a 20yr Ammt.

         The fourth agreement, entitled, "SALE CONTRACT" ("Sale Contract"), provides for the sale of the First Street Property from the Kecks to the Meeks through the following provisions in relevant part:

In consideration of $Exchange* paid by Second Party [Mr. Meek] as earnest money and part of the purchase price, receipt of which is hereby acknowledged, this contract is made binding on both parties. When First Party [the Kecks] shall offer or deliver to Second Party deed free and clear of all encumbrances, except as stated herein, being *Buyers due credit on above property for the net amount of equity as credit on the purchase price of the property @ Walnut Breeze in the following manner: $30, 000.00 less balance owing to Superior Finance - Knox, TN Apprx Amt. $14, 700.00 which will be assumed by second party[.]
If Second Party [Mr. Meek] fails to carry out and perform the terms of this agreement within fifteen days after deed is presented, except for some good reason satisfactory and acceptable to First Party [the Kecks], he shall forfeit the above amount advanced as earnest money and part of purchase price and be held liable for complete fulfillment of the within agreement.

(Underlined language handwritten in space provided on form.)

         Upon execution of the contracts, the Kecks took possession of the Walnut Breeze Property on October 1, 2013, and began making payments pursuant to the Lease Agreement. Mr. Meek testified that at some point prior to January 6, 2014, he contacted the Kecks, informing them that they had ninety days "to come in and close . . . otherwise [he and the Kecks] didn't have a deal." On January 6, 2014, the Kecks met with Mr. Meek and executed a warranty deed conveying title for the First Street Property to the Meeks for "Ten Dollars & other valuable Considerations." Mr. Meek did not convey title to the Walnut Breeze Property to the Kecks at this time. Mr. and Ms. Keck each respectively testified during trial that they left the meeting with the understanding that Mr. Meek would make the appropriate arrangements to transfer title to the Walnut Breeze Property by deed within a week. Mr. Meek testified that he knew on January 6, 2014, that officials at Home Federal Bank, the mortgagee for the Walnut Breeze Property, would not approve the transfer of title to the Walnut Breeze Property or permit assumption of the mortgage by the Kecks at that time.

         It is undisputed that following this conveyance, the Meeks began making payments on the approximately $14, 700 balance remaining on the First Street Property mortgage with Superior Finance, as well as purportedly paying some back taxes owed on the property.[3] This occurred while the Kecks remained as mortgagors on the debt. The Kecks continued residing on the Walnut Breeze Property for the remainder of 2014, making payments under the Lease Agreement. In January 2015, the Kecks stopped making payments and vacated the Walnut Breeze Property. The Meeks recorded the general warranty deed for the First Street Property on April 20, 2015. Two days later, Mr. Meek sent the Kecks a notice to vacate the Walnut Breeze Property by certified mail, additionally demanding payment for three months of missed payments under the Lease Agreement.

         On November 16, 2016, the Kecks filed a complaint against the Meeks, alleging fraud, unjust enrichment, and breach of contract. The Kecks asserted, inter alia, that they had not received the deed for the Walnut Breeze Property as they had expected as part of their bargain, that Mr. Meek had failed to make necessary repairs to the Walnut Breeze Property, and that they had lost their interest in both the property they conveyed and the property they purchased. The Kecks sought $75, 000 in compensatory damages, $150, 000 in punitive damages, a return of title to the First Street Property, and reasonable attorney's fees. The Kecks also moved for a lien lis pendens to be recorded concerning the First Street Property. The Kecks subsequently filed a motion for default judgment on January 18, 2017.

         The Meeks, initially proceeding without benefit of counsel, filed an answer on January 23, 2017, denying all substantive allegations. Subsequently represented by counsel, the Meeks filed a motion to amend their answer on April 6, 2017, raising as affirmative defenses a failure to plead fraud with particularity, waiver, estoppel, laches, unclean hands, and the statute of frauds. The Meeks concomitantly filed a counterclaim, alleging that the Kecks had breached the contract by failing to pay rent in February, March, and April 2015 pursuant to the Lease Agreement. As damages, the Meeks sought three months' rent and late charges in the amount of $3, 426, prejudgment interest, and reasonable attorney's fees. In response, the Kecks filed an answer to the counterclaim, denying liability for the missed payments and asserting that payments pursuant to the Lease Agreement were financing payments under the Real Estate Contract and not to be treated as rent.

         The trial court conducted a bench trial on May 10, 2017, during which the court heard testimony from Mr. Keck, Ms. Keck, the Kecks' adult daughter, and Mr. Meek. The Kecks each stated that although they had read the four documents at issue when they signed them, their understanding of the entire transaction was based in part on Mr. Meek's explanations. The Kecks acknowledged that they were aware that Mr. Meek was applying their payments under the Lease Agreement directly toward payment of the Walnut Breeze Property mortgage. The Kecks also each testified that on January 6, 2014, they met with Mr. Meek to exchange deeds to the properties and expected Mr. Meek to convey title to the Walnut Breeze Property to them that day. According to the Kecks, Mr. Meek orally promised during the meeting to make arrangements with Home Federal Bank to transfer the Walnut Breeze Property by deed within a week. The Kecks' daughter testified that she had observed Mr. Meek visit the Kecks on at least two other occasions in 2014 and heard Mr. Meek orally promise that he would go to Home Federal Bank with the Kecks whenever he had the time.

         Mr. Meek testified that his understanding of the four agreements was that the four in combination constituted a contract for a deed with a lease option to finance the payments on the Walnut Breeze Property. Contrary to the Kecks' assertions, Mr. Meek stated that his understanding of the First Street Property conveyance on January 6, 2014, was that it merely "consummated" the deal and was not an exercise of any lease option purchase. Mr. Meek maintained that he had merely told the Kecks during the January 2014 meeting that he would visit his contact at Home Federal Bank with them in order to inform the lender that the monthly payments on the Walnut Breeze Property should be applied to the Kecks' credit rating as payments on the underlying mortgage.

         Upon cross-examination, Mr. Meek acknowledged that the Kecks would possess equity in the Walnut Breeze Property under the contract, amounting to $15, 300 from the First Street Property conveyance, plus the amount of any payments made pursuant to the Lease Agreement. Consequently, the Kecks would owe Mr. Meek approximately $114, 000 for the remainder of the property. Mr. Meek also confirmed that the Kecks had possession of the Walnut Breeze Property through the lease in effect "until they came in and finished the paperwork and signed over their piece of property[.]" Mr. Meek acknowledged that to the best of his knowledge, officials at Home Federal Bank would not have allowed him to transfer title to the Walnut Breeze Property by deed or permit assumption of the mortgage by the Kecks during the time in which they occupied the Walnut Breeze Property. Mr. Meek admitted, however, that he had not spoken with an official from Home Federal Bank concerning the Walnut Breeze Property sale after executing the four documents in question.

         In an order entered June 21, 2017, the trial court granted the Meeks' motion to amend their answer, released the lien lis pendens recorded against the First Street Property by the Kecks, and awarded a judgment in the amount of $11, 874 in favor of the Kecks. Dismissing all remaining claims, the court incorporated its memorandum opinion, in which it had, inter ...

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