Saul T. Mallen (Sports-Wear Mills, Inc.) v. PI, Inc.

IN THE COURT OF APPEALS OF TENNESSEE FILED August 25, 1999 AT KNOXVILLE Cecil Crowson, Jr. Appellate Court Clerk

SAUL T. MALLEN, TRUSTEE OF ) C/A NO. 03A01-9811-CH-00364 SPORT-WEAR MILL, INC. ) LIQUIDATING TRUST, ) McMINN CHANCERY ) Plaintiff-Appellee, ) HON. F RANK V. WILL IAMS, III, ) CHANCELLOR v. ) ) PI, INC ., ) AFFIRMED ) AND Defend ant-App ellant. ) REMANDED

GEARHISER , PETERS, LOCKA BY & TAL LANT, PLLC., Chattanooga, for Plaintiff-Appellee.

HIGG INS, BID DLE, C HEST ER & TREW , LLP., A thens, for D efendan t-Appellan t.

O P I N IO N

Franks, J.

In this action, th e Trial Co urt award ed Sports-W ear Mills $9 5,000.00 in damages, and dismissed defendant, PI, Inc.,’s counter-claim. PI, Inc., has appealed and has raised these issues:

(1) Whether the Trial Court erred in holding that the Defendant was not entitled to specific performance of the Option Agreement; and

(2) Whether the Trial Court erred in awarding damages for the defendant’s alterations to the lessor’s building?

Plaintiff Saul Mallen is a Trustee of the Sport-Wear Mill Inc. Liquidating Trust. The Trust owns the building in Etowah which is the subject matter *2 of this litigation.

Defendant leased the building for three years, at $40,000.00 a year, and the parties also entered an Option A greemen t, which gra nted defe ndant the o ption to purchase the building at the end of the lease for $30,000.00. Defendant’s attorney prepared both agreements.

Defendant’s lease ended February 28, 1995, and the Option Agreement required that defendant exercise its purchase option between February 28 and April 1, 1995. O n June 12, 199 5, defe ndant te ndered a warr anty deed , which Malle n refus ed. Defe ndant r emain ed in the buildin g as a ho ld-ove r tenant u ntil Feb ruary 28, 1 996. After def endant va cated the bu ilding, Ma llen filed suit on March 8, 1996, see king to recover damag e to the building allegedly caused b y defendant, and defen dant counterclaimed fo r specific pe rforman ce of the O ption Ag reement.

“[R]eview of findings of fact by the trial court in civil actions shall be de novo upon the record of the trial court, accompanied by a presumption of the correctness of the finding, unless the preponderance of the evidence is otherwise.” T.R.A.P. 13(d). The same presumption does not apply to conclusions of law. Tennessee Farmers Mut. Ins. Co. v. Moore , 958 S.W.2d 75 9 (Tenn.App . 1997), appeal denied, October 6, 1997.

The Tria l Judge pro perly determin ed that def endant w as not entitled to specific performance because it did not comply with the terms of the Option Agreem ent. The O ption Ag reement, p repared by the defenda nt’s attorney, sets fo rth the manner in which the option must be exercised:

Exercise of Option. This option may be exercised only within the period between February 28, 1995 and April 1, 1995 and not earlier or later. To exercise this option, Optionee shall provide Optiono r written no tice of their inte nt and des ire to exercise said option, which notice shall be given such that it is received by Optionor after March 1, 1995 or before 12:00 noon the 1st day of April, 1995. Notice may be given by certified mail, return receipt requested, o r by hand-de livery to the Op tionor’s add ress as herein

specified and in the event of Optionor’s failure to accept any certified or registered mail, then its date of postmark shall be deemed the date of receipt and the mailing th ereof shall c onstitute notice of exercise of the option.

The Op tion Agre ement also provides th at “[i]f the O ptionee do es not exerc ise this option before its expiration, then the amount paid by the Optionee herewith shall be retained by the Optionor free of all claims of the Optionee.

The Trial Judge noted that the provisions at issue are specific, clear and unambiguous. When the language of a contract is plain and unambiguous, it is the court’s d uty to interp ret it and enforc e it as w ritten. Koella v. McHargue, 976 S.W.2d 658 (T enn.A pp. 199 8). Also see T.C.A. § 47-50-112. In this case, defendant did not give notice within the tim e specified by the contrac t, and time is of the essence in option contrac ts. Allen v. National Advertising Co., 798 S.W.2d 766 (Tenn.App. 1990). Th us, the defe ndant failed to comply w ith the terms o f the Optio n Agree ment. See Grisham v. Lowery, 621 S.W .2d 745, 74 9 (Tenn.A pp. 1981 ) (“[A]n o ption to purchase contained in a lease which is exercisable during the term of the lease is not extended by a holdover tenancy and, therefore, cannot be exercised by a lessee holding over after the expiration of a lease.”)

Defendant argues that it is entitled to specific performance, citing Gordon v. Snyder, 1987 WL 9257 (Tenn.App.) In Gordon, this Court found that an option had been validly exercised when the assignee orally accepted within the specified time and tendered the amount due only sixteen days later. The Court noted that the defendants had acquiesced in the delay by accepting late payments without exercising their right to terminate the lease and option.

In the instant case, there is no evidence that defendant gave oral notice of acceptance or otherwise, during the specified time. The record shows that it was the plaintiff who con tacted defendant rega rding the expiration of the o ption. More than three months passed before the defendant attempted to exercise the option. Thus, *4 Gordon is disting uishab le.

The defendant argues the Trial Court erred in awarding damages. The Lease A greemen t requires that “ [a]t the exp iration of the Lease term , the Tenan t shall surrender the Leased Property in as good a condition as it was at the beginning of the term, reasonable use and wear and damage by the elements excepted.” The Agreement also addresses repairs and alterations:

Tenant shall be responsible for any and all necessary repairs, including the maintenance of all plumbing, electrical, natural gas and sewer systems and also, for any repairs required to be made to the exterior or interior of the premises of every kind and charac ter durin g the term or any ex tended term of this Lea se. Any alteration s or improv ements m ade by the T enant shall remain the property of the Landlord and the Tenant shall not be obligated to remove the same upon termination of the Lease.

Defendant concedes that it altered the building. For example, the defendant dug pits in the floor, removed toilets and o ffices and remov ed an alarm system. The defendant contends, however, that the building appreciated in value during the lease and that this ap preciation exceeds the co st of repairs. The Trial Cou rt found that there was no competent proof regarding the fair market value of the building. M allen testified o n cross-exa mination th at someon e had off ered him $300,000.00 for the building, but he stated, however, that he knew the individual making the offer did not have the funds to purchase the building or otherwise follow through on the offer. Accordingly, we find that the Trial Court properly concluded that an award of d amages against the d efendant was p roper.

The defendant also argues the Trial Court’s award of damages was excessive. T here is cons iderable ev idence reg arding dam ages and repairs. Both parties offered testimony concerning the pre-lease condition of the building, damages and alterations. The Trial Judge considered all of the evidence submitted and made detailed findings concerning damages. Upon review, we conclude that the evidence does not p reponde rate against th e award o f damag es made b y the Trial Judg e to *5 plaintiff . T.R.A .P. Rule 13(d).

We affirm the judgment of the Trial Court and remand with the cost of the appea l assessed to th e appellant.

__________________________ Herschel P. Franks, J.

CONCUR:

___________________________ Houston M. Godd ard, P.J.

___________________________ Charles D. Susano, Jr., J.