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TWB Architects, Inc. v. The Braxton, LLC

Supreme Court of Tennessee, Nashville

July 22, 2019


          Session: February 6, 2019

          Appeal by Permission from the Court of Appeals Chancery Court for Cheatham County No. 14181 David D. Wolfe, Judge

         We granted review to determine whether summary judgment was properly granted to an architect firm seeking to recover its design fees from a development company. The architect firm designed a condominium project for the development company. The development company ran short of funds and was not able to pay the architect firm under their design contract. As a result, the architect firm's president agreed to accept a condominium in the project instead of the fee. But the development company did not fulfill that agreement because the development company had pledged the condominium as collateral for a construction loan. The architect firm filed a mechanic's lien for its unpaid fee under the parties' design contract, and then filed this suit to enforce the lien. The trial court granted summary judgment to the architect firm, holding that the firm was entitled to its fee under the design contract, and there was insufficient evidence that the parties intended a novation by substituting the agreement to convey a condominium for the design contract. The Court of Appeals affirmed. We find that disputed questions of material fact exist about whether the architect firm and the development company intended a novation when they entered into the agreement for the condominium. Thus, the trial court should not have granted summary judgment to the architect firm. We reverse and remand to the trial court.

         Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals Reversed; Judgment of the Trial Court Reversed; Remanded to the Trial Court

          William R. O'Bryan, Jr., and Kevin C. Baltz, Nashville, Tennessee, for the appellants, The Braxton, LLC, and Fidelity and Deposit Company of Maryland.

          Donald N. Capparella, Nashville, Tennessee, for the appellee, TWB Architects, Inc.

          Sharon G. Lee, J., delivered the opinion of the Court, in which Jeffrey S. Bivins, C.J., Cornelia A. Clark, Holly Kirby, and Roger A. Page, JJ., joined.




         In February 2005, TWB Architects, Inc., through its president and sole owner, Timothy W. Burrow, signed an agreement ("Architect Agreement") with Progress Capital Partners, LLC, through its sole member and chief manager, John Rankin. Under the Architect Agreement, TWB Architects agreed to provide design services for the construction of a condominium complex, known as "The Braxton," in Ashland City. Progress Capital Partners agreed to pay TWB Architects a fee for its design services based on two percent of the construction costs for the project, with progress payments based on an hourly rate billed monthly before construction.[1]

         Progress Capital Partners failed to obtain sufficient financing for the project. In early May 2005, Mr. Rankin advised Mr. Burrow that the construction budget could not cover TWB Architects' fee. Mr. Rankin proposed that Mr. Burrow accept a condominium in the project as payment for the architect firm's fee. Mr. Burrow, with the consent of TWB Architects, agreed.

         Later, Progress Capital Partners deeded the property on which the project was located to The Braxton, LLC ("Braxton"), a company formed by Mr. Rankin.[2] On February 16, 2006, Braxton and Mr. Burrow agreed in writing ("Condominium Agreement") for Mr. Burrow to buy Penthouse P6 for "$0 in consideration of design fees owed in contract for architecture design" between Progress Capital Partners and TWB Architects dated February 17, 2005. Mr. Burrow, with TWB Architects' consent, signed as purchaser and Mr. Rankin signed as seller for Braxton.[3] Attached and incorporated into the Condominium Agreement was a copy of the Architect Agreement, showing that TWB Architects' fee supported the zero dollar purchase price. Under the Condominium Agreement, the closing of the sale would be on or before August 4, 2008, with an option for Braxton to extend that date for up to ninety days.

         After June 2005, TWB Architects stopped sending Braxton monthly invoices for progress payments. By May 2006, TWB Architects had substantially completed its design work. During construction of the project, Mr. Rankin routinely submitted Loan Advance Requisition forms and Sworn Owner's Statements to the bank financing the project. Mr. Rankin signed the Sworn Owner's Statements, verifying that there were no unpaid architect fees because he understood there were no fees owed to TWB Architects based on the Condominium Agreement.

         During construction of the project, Mr. Burrow spent nearly $40, 000 for upgrades to Penthouse P6, which he referred to as "my penthouse." He corresponded with the general contractor and with Mr. Rankin about specific upgrades to customize Penthouse P6, which included cabinets, granite, tile, lighting, mantles, hearths, doors, wiring, and a unique floorplan.

         On November 3, 2008, the day before the extended closing deadline under the Condominium Agreement, Mr. Burrow wrote to Mr. Rankin demanding to close the next day. In addition, Mr. Burrow stated that if Braxton failed to meet the closing deadline, then Mr. Burrow would treat the Condominium Agreement "as continuing in full force and effect, and require specific performance of [Braxton] to deliver a deed." He mentioned neither the Architect Agreement nor the design fee.

         A week later, Mr. Burrow wrote to Mr. Rankin to clarify "instead of TWB Architects, Inc. receiving cash for the design fee of 2 percent of construction cost as set forth in the . . . [Architect Agreement], I will be given Penthouse P6 and the boat slip." He asked Mr. Rankin to sign at the bottom of the letter to confirm the terms stated in the letter, but Mr. Rankin did not do so.

         On November 11, 2008, Mr. Burrow emailed Mr. Rankin, asking whether he had told the bank that the proceeds from the condominium sale to Mr. Burrow would be zero dollars. Mr. Rankin replied that he had told the bank that Mr. Burrow would need to be paid two percent or receive his condominium unit, and that Mr. Burrow had invested tens of thousands of dollars in the condominium. Mr. Rankin later admitted in a 2010 deposition that he told the bank something different-that Mr. Burrow was "our design architect, and he's getting this unit for his fees."

         On November 25, 2008, Mr. Burrow wrote to Robert Holland, an attorney for Braxton, stating that Mr. Burrow had entered into a Condominium Agreement for Penthouse P6 that was set to close on December 8, 2008, and that he was concerned about the incomplete swimming pool at the condominium complex. On December 12, 2008, Mr. Burrow wrote again to Mr. Holland explaining that he had rented his home to a tenant who planned to move in on December 18, 2008. In that letter, Mr. Burrow stated that in the Condominium Agreement, Braxton had granted its rights to Penthouse P6 to Mr. Burrow and thus Braxton had "no rights to the condominium to grant, as security for a loan or otherwise, and any attempt to do so would be voidable."

         On December 27, 2008, Mr. Burrow moved into Penthouse P6 although there had been no closing. He later advertised it for rent "by owner" and leased it for a short time before moving back in and using the condominium as his personal residence. On January 2, 2009, Mr. Burrow wrote to Mr. Holland stating that he had moved into his penthouse and that "it [was] beautiful." He also expressed concern that sales of other units had not closed, the condominium complex looked like a "ghost town," and potential buyers might back out. Mr. Burrow offered his services as an attorney to assist with the situation, stating he would "invest my time to protect my investment in my penthouse."[4]

         On January 6, 2009, Mr. Burrow emailed Mr. Rankin asking if there was any reason why he should not send a letter to Mr. Holland again requesting to close on the condominium and stating that "[t]he condo is my payment for architectural work done on The Braxton, and until closing occurs, I have insufficient security for being paid." Mr. Burrow did not send the proposed letter; instead, the next day he wrote Mr. Holland asking when Braxton intended to complete his condominium, emphasizing that he wanted to close on it as soon as possible. Mr. Burrow gave Mr. Holland until Friday, January 9, 2009, to provide a date for closing or to provide a reason why closing could not occur by the end of the following week, January 16, 2009.

         On January 13, 2009, Mr. Burrow, suspecting that Braxton would not deed the condominium to him, notified Mr. Holland in writing that TWB Architects had retained Mr. Burrow's firm to represent it concerning services provided by TWB Architects under the Architect Agreement. Mr. Burrow stated that TWB Architects had a claim against the owner of the project for $882, 526.14, which was two percent of the construction cost.[5] Mr. Burrow also stated that if the claim was satisfied by January 19, 2009, or if Braxton provided proper assurances it would be satisfied, then TWB Architects would not file a mechanic's lien. Mr. Burrow further noted that Braxton could satisfy the claim by transferring ownership of Penthouse P6 to him. This letter, written on Mr. Burrow's law firm letterhead, was the first time that Mr. Burrow mentioned the Architect Agreement or the fee in his communications with Mr. Holland.

         On January 22, 2009, Mr. Burrow wrote Mr. Rankin purporting to state their understanding when they entered into the Condominium Agreement. This letter differs significantly from the letter Mr. Burrow had written on November 10, 2008, for the same stated purpose. In the January 2009 letter, Mr. Burrow said that the Condominium Agreement was intended to provide an additional means to pay for the services of TWB Architects. He further claimed that if for any reason Braxton did not comply with the Condominium Agreement, Mr. Burrow could unilaterally decide whether to seek specific performance under the Condominium Agreement or payment of the design fee under the Architect Agreement. Mr. Burrow asked Mr. Rankin to sign at the bottom of the letter confirming its accuracy, and this time Mr. Rankin did so. But Mr. Rankin later denied his ratification of this letter, explaining that since he was no longer a member of Braxton in January 2009, he was not in a position to bind Braxton to the contract, and that the contract documents said nothing about Mr. Burrow unilaterally deciding between two alternate forms of payment.

         On January 23, 2009, Mr. Burrow wrote Mr. Holland about a telephone conversation on January 15, 2009, in which Mr. Holland had explained that the closing on the condominium was delayed because the bank had an assignment on the sales contracts, and there was no challenge to TWB Architects or Mr. Burrow's position about having the condominium deeded to him.[6] Mr. Burrow stated that he would be filing a mechanic's lien against the property on February 3, 2009, unless he received written assurance that Braxton would deed the condominium to him.

         On February 23, 2009, Mr. Burrow emailed Mr. Holland to advise him that Mr. Burrow was ready to close that week on the condominium even though certain items, such as appliances, carpet, and shelving were unfinished. He also stated that in two days TWB Architects would be filing a lien, which it could release at closing and that TWB Architects reserved its right to take cash for the $882, 526.14 fee rather than have the condominium deeded to Mr. Burrow. Finally, he stated that "taking cash becomes a more attractive option, if not the only viable option, as time passes on."

         On February 25, 2009, Mr. Burrow learned from an attorney for the bank that Braxton had pledged his condominium as part of the collateral for the construction loan. The next day, TWB Architects filed a mechanic's lien for its two percent design fee in the amount of $882, 526.14 (later revised to $888, 258.18) as provided for in the Architect Agreement. Mr. Burrow lived in Penthouse P6 until moving out in late 2009 after the Chancery Court for Davidson County in May 2009 gave a receiver the right of possession to every condominium in the project, including Penthouse P6.

         Litigation - TWB I

         In March 2009, while Mr. Burrow was still living in Penthouse P6, TWB Architects sued Braxton to enforce its lien.[7] Fidelity and Deposit Company of Maryland, the obligor on the surety bond Braxton filed to discharge the lien, was added as a defendant in April 2009. We refer to the defendants collectively as "Braxton."

         In January 2013, Braxton moved for summary judgment based, in part, on the affirmative defense of novation, arguing that the Condominium Agreement substituted for the Architect Agreement and thus extinguished TWB Architects' right to its fee under the Architect Agreement. Braxton supported the motion for summary judgment with several exhibits, including Mr. Rankin's June 11, 2009 affidavit and excerpts from his March 23, 2010 deposition.

         In his affidavit signed on June 11, 2009, Mr. Rankin stated that the parties intended for the obligations under the Condominium Agreement to substitute for the obligations under the Architect Agreement. He also stated that all parties understood that the Condominium Agreement would discharge all obligations owed under the Architect Agreement and would extinguish all rights of the parties under the Architect Agreement.

         Mr. Rankin's March 23, 2010 deposition tracked his June 2009 affidavit. He testified that the purpose of his affidavit had been to state that the parties intended for the Condominium Agreement to create a novation and to clear up any confusion caused by his correspondence with Mr. Burrow. Mr. Rankin wanted to make clear that Mr. Rankin intended to pay TWB Architects' fee by conveying the condominium to Mr. Burrow instead of paying the architect fee because of insufficient funding. Mr. Rankin testified that the Architect Agreement was no longer the agreement between the parties, and that the Condominium Agreement replaced the obligations under the Architect Agreement, causing a novation.

         Mr. Rankin claimed that even though he had signed the bottom of Mr. Burrow's letter dated January 22, 2009, as requested, the contract documents did not say anything about Mr. Burrow unilaterally choosing which payment method to accept. Mr. Rankin also testified that he thought Mr. Burrow decided he needed to set forth a different intent than the one he had expressed in his letter dated November 10, 2008, because by January 2009, it looked like he would have trouble getting his condominium. Mr. Rankin explained that Braxton had pledged Penthouse P6 along with other condominium units to the bank as collateral, but he and Mr. Burrow thought the condominium would be available to Mr. Burrow after Braxton paid ...

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