Unpublished Dispositionin Re J. Michael Tomlin, Debtor.j. Michael Tomlin, Plaintiff-appellant, v. Tsc Industries, Inc., Defendant-appellee, 914 F.2d 258 (6th Cir. 1990)Annotate this Case
Before RALPH B. GUY, Jr. and RYAN, Circuit Judges; and ENGEL, Senior Circuit Judge.
GUY, Circuit Judge.
Plaintiff, J. Michael Tomlin, appeals from the order of the district court affirming a grant of partial summary judgment by the bankruptcy court in favor of defendant, TSC Industries, Inc. (TSC). The plaintiff, a debtor-in-possession under Chapter 11 of the Bankruptcy Code, filed this adversary proceeding against the defendant for rent payments and lease commissions allegedly due the plaintiff. The bankruptcy court concluded that the clear meaning of the final order of the chancery court of Tennessee in a previous action was that the lease in question had been terminated, and that the defendant had no continuing obligation to pay rent to the plaintiff. The plaintiff appeals the grant of summary judgment, alleging that material factual disputes surrounding the chancery court order preclude summary judgment. Finding that the bankruptcy and district courts correctly interpreted the court order, we affirm the disposition of this adversary proceeding by summary judgment.
On March 13, 1987, Tomlin filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code, and he assumed the fiduciary role of Chapter 11 debtor-in-possession pursuant to 11 U.S.C. § 1107. On April 29, 1987, he filed an adversary proceeding against TSC, seeking, inter alia, rent payments allegedly due under the terms of a lease that had been modified by a court order in an earlier chancery court action.1
In December 1982, the plaintiff purchased the Trac-Tenn building, located at 915 Murfreesboro Road, Nashville, Tennessee, from the defendant, TSC. Contemporaneously with the purchase of the building, the plaintiff leased space in the building to TSC for a term of ten years. In 1985, TSC commenced a fraud action for compensatory and punitive damages against Tomlin in Tennessee Chancery Court, claiming that Tomlin sought and obtained an artificially high interest rate in order to reduce the sales price. According to the parties' purchase agreement, TSC was to receive rent rebates or cash payments from Tomlin, depending on the interest rate, so long as the interest rate Tomlin attained was fifteen percent or less. Because of this arrangement, TSC was willing to sell the building to Tomlin for a substantially lower price than it had originally sought. Tomlin acquired financing at 15 1/4 percent from First America Bank, however, thus depriving TSC of any right to the rent rebates or cash payments.2 During a break in the trial, on August 14, 1986, Tomlin and Hennessy, chairman and chief executive officer of TSC, discussed a settlement of TSC's action against Tomlin and reached a tentative agreement. The parties' attorneys did not participate in the preliminary negotiations, but Gary Blackburn, counsel for TSC, later read the terms of the proposed settlement into the record before the court. Blackburn also prepared and circulated an order to be signed by the parties. That order, entered by the chancery court on September 8, 1986, included the following relevant provisions:
1. TSC will vacate the leasehold premises in the Trac-Tenn Building at 915 Murfreesboro Road within six (6) months of the date of this order. Within ninety (90) days of the date of this order, TSC will notify Mr. Tomlin of its proposed date of relocation, and not later than the thirtieth (30th) day prior to the scheduled date of move, Mr. Tomlin will pay TSC the sum of Three Hundred Thousand Dollars ($300,000.00) in cash....
3. Mr. Tomlin promises to pay TSC an additional Three Hundred Thousand Dollars ($300,000.00) as follows: Mr. Tomlin will execute to TSC a promissory note in the principal sum of Three Hundred Thousand Dollars ($300,000.00), which note shall be payable over thirty-six (36) months, commencing one month following the date designated by TSC as its moving date, providing that TSC indeed vacates the premises, together with interest at a per annum rate equal to the New York prime rate upon the designated date of move. Said promissory note, together with all interest which shall accrue, shall be secured by deed of trust upon the Trac-Tenn Building ...
(Appellant's Brief at 8-9). This lawsuit arose because of the parties' differing interpretations of the above court order. The plaintiff's view is that the above order does not release TSC of its obligation to pay rent after moving out, whereas TSC interpreted the settlement to provide for a purchase of the lease by Tomlin, terminating the lease and its obligation to pay rent thereunder.
To understand the dispute, we must look to the overall agreement that was negotiated and to the parties' respective perceptions of their obligations. During the initial settlement negotiations, handwritten notes were taken, apparently by Mr. Hennessy, which reflected the agreement of the parties that ultimately became the final order of the court. One sentence of these notes is written in a different handwriting, apparently that of an attorney for TSC, and reads, "JMT [Tomlin] agrees to purchase lease + represent TSC in obtaining new leasing space." (Appellant's Brief at 7).
When court reconvened, Mr. Blackburn read the terms of the settlement into the record, and neither party objected. He included in his statements Tomlin's agreement to purchase the lease. The final order as entered by the court does not mention the lease purchase, however.
When Tomlin entered into the settlement agreement, he expected to be able to rent TSC's space to the State of Tennessee, which already occupied much of the Trac-Tenn building. In December 1986, the state notified Tomlin that it would not accept the proposed lease and would vacate the building when its current lease expired. At this time, Tomlin instructed his counsel to inform TSC that he expected the company to continue to pay rent after vacating the building, but that these rents could be offset against money owed by Tomlin under the final order of the chancery court.
After TSC refused to accept this proposal, Tomlin filed a motion in the chancery court to vacate or set aside the order, stating that because the order did not provide for termination of the 1982 lease, TSC could not evade its rent obligations by relying on the order. The court denied Tomlin's motion, stating only that insufficient cause existed for granting the motion. TSC moved out of the Trac-Tenn building in February 1987.
Tomlin then filed for bankruptcy in March 1987 and instituted this suit one month later. The bankruptcy court granted the defendant's motion for summary judgment, and the district court affirmed. This appeal followed.
Our review of the bankruptcy court's grant of summary judgment is de novo. "Summary judgment is appropriate ' [w]here the moving party has carried its burden of showing that the pleadings, depositions, answers to interrogatories, admissions and affidavits in the record, construed favorably to the nonmoving party, do not raise a genuine issue of material fact for trial." McKee v. Cutter Laboratories, Inc., 866 F.2d 219, 220 (6th Cir. 1989) (quoting Gutierrez v. Lynch, 826 F.2d 1534, 1536 (6th Cir. 1987)).
The current dispute arose because the final order refers to neither the lease purchase nor TSC's rent obligations. The plaintiff maintains that there exists a material issue of fact as to TSC's obligation to pay rents, and his claim on appeal is that this alleged factual dispute should have precluded disposition of this matter by summary judgment.
Both the bankruptcy court and the district court determined that the final order provided that the lease was to be terminated when TSC vacated the building. Neither court considered either the negotiations between the parties before the final order was entered, or what TSC's counsel stated in open court before the order. The bankruptcy court reasoned that "a court can only speak through its orders and, although the order was an agreed-to final order, it was signed by the Court to conclude the case." (App. 251). The plaintiff argues that this order is ambiguous and that extrinsic evidence must be admitted to determine the meaning of the order. We agree with the bankruptcy and district courts that the chancery court order governs the obligations of the parties, and we decline to look beyond its terms to resolve the issue before us. However, it is appropriate for us to consider the overall situation of the parties and the transactions that led to the court order. Hamblen County v. City of Morristown, 656 S.W.2d 331, 333 (Tenn.1983). There is a distinction between admitting extrinsic evidence and looking at the totality of the circumstances to determine the intent of the parties. We may:
"... consider the situation of the parties and the accompanying circumstances at the time [the order] was entered into--not for the purpose of modifying or enlarging or curtailing its terms, but to aid in determining the meaning to be given to the agreement." RESTATEMENT OF CONTRACTS Sec. 235(d) and Comment.
Particularly pertinent here is the following principle:
"... If it can be plainly seen from all the provisions of the instrument taken together that the obligation in question was within the contemplation of the parties when making their contract or is necessary to carry their intention into effect, the law will imply the obligation and enforce it." 17 Am.Jur.2d Contracts Sec. 255 (1964) at 649.
Id. at 334.
A careful examination of the circumstances leading up to the court order in this case clearly supports the bankruptcy court's conclusion that TSC's obligation to pay rent terminated when the company vacated the building. The final order was reached as a settlement to the lawsuit that TSC had filed against Tomlin. As a part of this settlement, Tomlin needed for TSC to vacate the Trac-Tenn building so that he could rent the space to the State of Tennessee at a higher rent. Having vacated, TSC was required to find and pay for new space in which to conduct its business. The contention that TSC would be required to move out of a building before its lease had expired, pay for new quarters and moving expenses and yet continue to pay rent on space it had vacated at the request of its lessor, is untenable. The chancery court order states that TSC will vacate the Trac-Tenn building within six months of the date of the order, and that Tomlin will pay TSC $300,000.00 cash before relocation, and an additional $300,000.00 in the form of a promissory note after relocation. In construing this order, we must give the words their "usual, natural and ordinary meaning." Taylor v. White Stores, Inc., 707 S.W.2d 514, 516 (Tenn.App.1985). No other meaning reasonably can be given to the terms of the chancery court order in this case than that TSC's obligation to pay rent to Tomlin ended when it moved out of the building. Our conclusion is bolstered by the fact that the only transfer of funds that is mentioned in the court order flows from Tomlin to TSC. Presumably, if TSC also was obligated to pay rent to Tomlin, the logical approach would have been to reduce the amount of Tomlin's obligations by the amount of rent due. Because the order does not provide for this or any similar arrangement, we must conclude that the order does not obligate TSC to pay rent to Tomlin.
Tomlin argues that his subjective intention was that TSC's obligation to pay rent would continue after the company relocated. He claims that, otherwise, he would not have entered into the settlement agreement. To support this claim, Tomlin notes that upon reaching the settlement with TSC, he exclaimed that he had just made a million dollars. TSC still owed $1,600,000.00 on its lease with Tomlin, and Tomlin was to pay TSC $600,000.00 pursuant to the court order. He argues that this "million dollars" was the difference between the rent remaining due on the lease and the amount he would pay TSC to vacate the building. However, there is no evidence to suggest that Tomlin ever indicated to Hennessy during the course of negotiations that he still expected TSC to pay rent. " [I]n matters of unambiguous written instruments absent proof of fraud, misrepresentation, undue influence and situations of like character, the unspoken subjective intent of a party is not relevant." Malone & Hyde Food Servs. v. Parson, 642 S.W.2d 157, 159 (Tenn.App.1982). At best, Tomlin's subjective perception that TSC's rent obligations continued was due to a unilateral misunderstanding of the nature of their agreement. At worst, he created this notion after the fact when he learned that the State of Tennessee would not take over the space left vacant by TSC.
Like the bankruptcy court, we limit our conclusions to those which can be drawn from the four corners of the final order as enlightened by the totality of the circumstances. The final order does not refer to the lease purchase by Tomlin, and we decline to pass upon the question whether the transaction between the parties constituted a lease purchase.3 The meaning of the final order of the chancery court is clear beyond cavil, and the disposition of this matter by summary judgment was appropriate.
ENGEL, Senior Circuit Judge, dissenting.
The dispute below turned upon the interpretation of an agreement between the parties to settle TSC's state court fraud suit against Tomlin and whether that agreement also terminated TSC's prospective rental obligations when, in compliance with the agreement, it vacated Tomlin's commercial property. The sole issue in this appeal is whether the district court erred in concluding as a matter of law that the lease was terminated and entering summary judgment against Tomlin on his rent claims. Because I believe the district and bankruptcy courts erred in finding no ambiguity in the settlement agreement, thereby refusing to consider extrinsic evidence, I must respectfully dissent.
On December 6, 1982, TSC Industries sold its corporate headquarters in Nashville, Tennessee, to Tomlin. Tomlin and TSC contemporaneously entered into a ten-year lease-back agreement whereby TSC agreed to occupy a large portion of the "Trac-Tenn Building." The remaining additional space was leased to the State of Tennessee. Under the terms of the sales contract, the total price paid by Tomlin depended upon the interest rate at which he was able to obtain funds to finance the transaction. In addition to the initial price, therefore, Tomlin was obligated to make increased payments which were adjusted according to the ultimate interest rate of the loan. Tomlin was not obligated to make these additional payments, however, if bank financing equaled or exceeded 15%.1 Tomlin subsequently obtained short-term financing with First American National Bank at 15.25%.
In 1985, TSC filed suit against Tomlin and First American in the Chancery Court of Davidson County Tennessee, seeking recission of the sales contract or, in the alternative, compensatory and punitive damages. TSC asserted that Tomlin deliberately obtained an artificially high interest rate to reduce the sales price of the Trac-Tenn Building. During the trial of this state court suit, Tomlin and TSC agreed to settle the suit.2 The dispute in this case is whether the parties intended to terminate the lease by virtue of their compromise and whether the district judge correctly granted summary judgment resolving the intent issue in favor of TSC.
The first evidence of a settlement, which was initially hand-written, was read into the state court record on August 14, 1986:
MR. BLACKBURN [TSC's counsel]: May it please the Court, the parties have reached a compromise and settlement, and at this time, with Your Honor's permission, I would like to read the terms of the agreement into the record, with the record showing it being read in the presence of both parties and their counsel for the purpose of there being no misunderstanding when we submit a proposed order to the Court.
And this, Your Honor, would not involve a nonsuit or a dismissal; this will be an agreed order, is what we are proposing to the Court.
Number one, TSC will receive $300,000 in cash when it notifies Mr. Tomlin that it is ready to move. And specifically what we are agreeing to do, may the Court please, is TSC will agree to move within six months, and within 90 days of this date TSC will notify Mr. Tomlin of its projected moving date. Thirty days prior to that date this 300,000 dollar cash payment will be made to TSC.
Number two, Mr. Tomlin has agreed to obtain a ten-year lease on 32,000 square feet of rental space at Metroplex Gardens in Nashville, Tennessee, at a rental figure within 3 percent of present rent and scheduled increases. Specifically what that refers to, Your Honor, is that Mr. Tomlin is agreeing to obtain the rental space and that the space will cost TSC no more than 3 percent more than it would have to pay under the current lease agreement in effect.
THE COURT: All right.
MR. BLACKBURN [TSC's counsel]: Number three, TSC will receive a promissory note from Mr. Tomlin in the principal amount of $300,000 bearing interest at 12 percent--this is why I wanted to read it.
(Whereupon a discussion off the record was had.)
MR. BLACKBURN [TSC's counsel]: Your Honor, the promissory note, after discussion with the parties and counsel, the agreement is that it will be in the principal amount of $300,000, the interest will be at the New York prime rate on the date of the move and will be payable in equal monthly installments, principal and interest, over a period of 36 months from the date of the note, that is, the date of the move. The note will be executed in advance of that, but the payment period will commence on the date of the move. That note will be secured by a second mortgage deed of trust on the Trac Tenn Building.
Number four, Mr. Tomlin has agreed to reimburse TSC any expenses related to Trac Tenn's tenancy which are presently unpaid or disputed. And what is specifically alluded to here, Your Honor, is repair to the air conditioning system and an electrical problem.
Is there more detailed language?
MR. HENNESY [TSC's chief executive officer]: We will determine the amount.
MR. BLACKBURN [TSC's counsel]: Number five, Mr. Tomlin agrees to testify truthfully in any subsequent proceedings which may occur against First American Bank in the event the [Tennessee] Court of Appeals were to disagree with the Court's action.
Number six, TSC agrees to sell its lease to Mr. Tomlin, Mr. Tomlin agrees to purchase it, and TSC agrees that Mr. Tomlin will be its leasing agent for the purpose of obtaining the new rental space.
MR. HENNESY [TSC's chief executive officer]: May be the leasing agent.
MR. BLACKBURN [TSC's counsel]: May be, yes. What we are specifically trying to agree to is that he may be, that if he in fact finds space, which space is then utilized by TSC, then TSC will regard him as the leasing agent. In the event that TSC were to find space on its own and chose that space, then that would not be the case.
MR. TOMLIN: If no commission was paid.
MR. BLACKBURN [TSC's counsel]: As long as no commission is paid on that transaction. The intent of this is that Mr. Tomlin is to receive any commission that is earned on TSC's leasing of new space, wherever it is.
May the Court please, it obviously goes without saying that this pertains to the case of TSC versus Tomlin only.
THE COURT: What about the cost of the case?
MR. BLACKBURN [TSC's counsel]: May the Court please, it is customary on this that the costs are paid by the defendant, and we had not really discussed that. In comparison to these figures, that's a small amount of money.
It has always been my custom, when I get paid, they pay the costs, and when I pay, I pay the costs.
MR. CURRY [Tomlin's counsel]: The defendant will pay the costs, Your Honor please.
THE COURT: All right. Mr. Curry, is that an accurate statement as to the compromise and settlement in this case?
MR. CURRY [Tomlin's counsel]: Yes, Your Honor, on behalf of the defendant Tomlin.
* * *
[Transcript of state court proceedings, August 14, 1986, at 2-5 (emphasis supplied.) ]
The parties subsequently memorialized this agreement in a "Final Order," which was drafted and circulated by TSC. The Final Order entered by the state court, and signed by attorneys for both parties and the bank, provides in part:
.... Following the direct testimony of Mr. Tomlin, the plaintiff and the defendant, after conferring, announced to the Court that it had agreed to a compromise and settlement of the remaining claims against Mr. Tomlin.
The parties announced to the Court the following proposed settlement:
1. TSC will vacate the leasehold premises in the Trac-Tenn Building at 915 Murfreesboro Road within six (6) months of the date of this order. Within ninety (90) days of the date of this order, TSC will notify Mr. Tomlin of its proposed date of relocation, and not later than the thirtieth (30th) day prior to the scheduled date of move, Mr. Tomlin will pay TSC the sum of Three Hundred Thousand Dollars ($300,000) in cash.
2. Mr. Tomlin will obtain for TSC a ten (10) year lease on 32,000 square feet of comparable office space at Metroplex Gardens in Nashville, Tennessee at a rental figure within three percent (3%) of that rent, including scheduled increases, for which the plaintiff is presently obligated upon its lease of space within the Trac-Tenn Building. TSC is not obligated, however, to accept any lease proposed to it by Mr. Tomlin.
3. Mr. Tomlin promises to pay TSC an additional Three Hundred Thousand Dollars ($300,000) as follows: Mr. Tomlin will execute to TSC a promissory note in the principal sum of Three Hundred Thousand Dollars ($300,000), which note shall be payable over thirty-six (36) months, commencing one month following the date designated by TSC as its moving date, providing that TSC indeed vacates the premises, together with interest at a per annum rate equal to the New York prime rate upon the designated date of move. Said promissory note, together with all interest which shall accrue, shall be secured by deed of trust upon the Trac-Tenn Building.
4. Mr. Tomlin shall reimburse TSC for any expenses presently incurred related to the Trac-Tenn Building which may be unpaid or disputed, and shall promptly pay all such invoices when presented to him.
5. TSC agrees that Mr. Tomlin will serve as its leasing agent with regard to the proposed relocation to Metroplex Gardens. Should any commission be earned upon any relocation of TSC, TSC agrees that Mr. Tomlin will be the agent to whom such commission shall be payable.
6. Should further proceedings be had in the plaintiff's case against First American National Bank, Mr. Tomlin agrees to testify truthfully in any hearing or trial conducted pursuant thereto.
7. The defendant J. Michael Tomlin further agreed to pay the costs of this cause....
The state court entered this Final Order on September 8, 1986. The Order does not include the language read into the state court record which pertained to the purchase and sale of the lease.
Three weeks after the Final Order was filed, TSC informed Tomlin that it intended to construct its own building and therefore would not lease office space from a third-party. Tomlin sent a letter to TSC seeking assurances that it would vacate by February 14, 1987, the date by which TSC had agreed to vacate under the Final Order. Tomlin apparently wished to have the assurances because the State of Tennessee expressed interest in leasing space occupied by TSC. Sometime in early December, 1986, however, the State of Tennessee informed Tomlin that it would not accept his proposed lease and would vacate the building when its current lease expired.
In December 1986, TSC notified Tomlin that it planned to vacate the Trac-Tenn Building in February in accordance with the Final Order. TSC also informed Tomlin that the second $300,000 cash payment would be due prior to that date. On December 16, 1986, Tomlin's counsel proposed to TSC's counsel that in lieu of paying this amount outright to TSC, the $300,000 could be offset against future rents due Tomlin from TSC under the lease. TSC declined this option, contending that the negotiated settlement agreement terminated the lease and that no lease payments were due after TSC vacated the building. TSC vacated the Trac-Tenn Building on February 10, 1987. At that time, TSC's rent obligations were current.
On January 9, 1987, Tomlin apparently filed a motion to set aside or vacate the Final Order in the Chancery Court. Tomlin argued that the Final Order entered by the state court did not provide for the termination of the lease and that TSC must continue to meet its rent obligations. The Chancery Court apparently denied relief.3
Tomlin subsequently filed a voluntary petition for relief under Chapter 11 in the Bankruptcy Court on March 13, 1987. On April 29, 1987, Tomlin, as a debtor-in-possession, filed this suit against TSC. Tomlin sought rent payments due under the lease and lease commissions. He also argued that he did not receive "reasonably equivalent value" for the obligation undertaken by him under the Final Order. The bankruptcy court granted partial summary judgment in favor of TSC on the rent claims on May 10, 1988, concluding that the settlement terminated the lease and the consequent obligation to pay rents. The district court affirmed summary judgment on this issue in a June 30, 1989 Order. Tomlin's sole contention on appeal is that the district court erred in affirming the summary judgment on this issue.
A. Standard of Review.
A district court's grant of summary judgment is reviewed de novo by this court. See McKee v. Cutter Laboratories, Inc., 866 F.2d 219, 220 (6th Cir. 1989). Summary judgment is appropriate where there is no genuine issue of material fact, and the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56. A material issue of genuine fact exists where a reasonable jury, viewing the evidence in the light most favorable to the non-moving party, could return a verdict for that party. Boddy v. Dean, 821 F.2d 346, 349 (6th Cir. 1987). The party seeking summary judgment bears the initial burden of showing the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In responding to a summary judgment motion, however, the nonmoving party cannot rest on its pleadings, but must present some " 'specific facts showing that there is a genuine issue for trial.' " Celotex, 477 U.S. at 324 (quoting Fed. R. Civ. P. 56(e)).
B. Ambiguity in the Final Order.
I begin with a review of the bankruptcy court's reasoning in granting summary judgment. In holding that the lease terminated, the bankruptcy court declined to consider extrinsic evidence bearing upon the intent of the parties, stating that the Final Order embodied the agreement of the parties. In the transcript of the telephonic hearing on this issue, which was incorporated into the bankruptcy court's summary judgment order, the bankruptcy court stated:
Counsel, the Court has reviewed all of the documents and pleadings in this case and is prepared to render a decision on the motions at this time. First of all, the Court, in regards to the final order that was entered into by Judge Kurtz on September 8, 1986, adopts the position that this embodies the agreement between the parties. It's the judicial decree which resolves the differences of the parties arising out of their state court lawsuit. The Court finds little reason to look to what was roughed out between the parties prior to this final order or to look to what was stated "in open court" prior to this final order. Regardless of these prior transactions, a court can only speak through its orders and, although the order was an agreed-to final order, it was signed by the Court to conclude the case. The Court would also note that the parties' relationship at the time of the drafting of the final order was adversarial at best, and probably somewhat worse than that since one provision required truthful testimony by a party in a future trial against a third party. The Court notes this to show the suspicion with which the parties looked to each other, and it's obvious that this was known to the parties' excellent counsel who hammered out this agreed-to final order to embody their agreement.
Turning to that order, clause one of the final order provides that TSC will vacate the leasehold premises in the Track 10 Building (sic) at 915 Murfreesboro Road within six months of the date of this order. The plain wording of that clause states the lease, in the Court's opinion, is to be terminated effective on the date of the order. Therefore, there is no liability by TSC to Tomlin on the lease. The final order is silent as to any other agreements with respect to the lease, and, therefore, no such agreements will be implied by the Court.
[Transcript of April 5, 1988 hearing at 1-2.] The transcript of this hearing reveals that the court concluded that the lease terminated on September 8, 1986, the effective date of the state court's Final Order. In the bankruptcy court's May 10, 1988 Order, however, the court stated that "under the terms of the final order entered by the Circuit Court of Davidson County, Tennessee, the clear meaning of the order is that the lease in issue was to be terminated as of February 14, 1987." The apparent inconsistency in the bankruptcy court's conclusions on the termination date of the contract emphasizes the difficulty in interpreting the state court's Final Order. The Order is silent on the critical issue on appeal here--the termination of the lease.
On appeal to the district court, that court also evidently believed the Final Order to be unambiguous, declining to refer to any extrinsic evidence. The district court stated quite simply: "During the course of the trial, the case was settled on terms stated in open court, and a subsequent court order was entered. It is clear beyond any doubt that the lease was terminated by virtue of the compromise." (Order dated June 30, 1989, at 1).
The parties to this action do not dispute that Tennessee law applies here. The cardinal rule for the interpretation of a contract is to ascertain the intention of the parties and to give effect to the intention consistent with legal principles. Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580 (Tenn.1975). In ascertaining the intention of the parties and what was within their contemplation, the court should consider all of the surrounding circumstances. See Fidelity-Phenix Fire Ins. Co. of New York v. Jackson, 181 Tenn. 453, 181 S.W.2d 625 (1944). If a contract is plain and unambiguous, the meaning is a question of law and it is the court's function to interpret the contract as written. See Petty v. Sloan, 197 Tenn. 630, 277 S.W.2d 355, 361 (1955); see also Hamblen County v. City of Morristown, 656 S.W.2d 331, 335 (Tenn.1983). "Where the writing is not plain and unambiguous and is such as to require the aid of parol evidence and the parol evidence is conflicting or such as admits of more than one conclusion, it is not error to submit the doubtful parts under proper instructions to the jury." In re Estate of Espey, 729 S.W.2d 99, 101-02 (Tenn.App.1986); see also Forde v. Fisk University, 661 S.W.2d 883, 886 (Tenn.App.1983); Jackson v. Miller, 776 S.W.2d 115 (Tenn.App.1989).
Tomlin's primary argument here is that the bankruptcy and district courts erred in finding this Final Order unambiguous and refusing to consider the circumstances surrounding the Final Order. I agree because, in my opinion, the Final Order is not unambiguous. "A contract is ambiguous only when it is of uncertain meaning and may fairly be understood in more ways than one. A strained construction may not be placed on the language used to find ambiguity where none exists." Empress Health and Beauty Spa, Inc. v. Turner, 503 S.W.2d 188, 190-91 (Tenn.1973); see also Rogers v. First Tennessee Bank Nat. Ass'n, 738 S.W.2d 635, 637 (Tenn.App.1987). It hardly takes a strained construction to conclude that the Chancery Court's Order evidencing the settlement was ambiguous. Although the Final Order indicates that TSC is to "vacate the leasehold premises," nothing in Tennessee law indicates that these words without more automatically convey an intent to terminate a lease as a matter of law.4 TSC cites no case equating the term "vacate" with "terminate." The Tennessee rule of construction that words used by the parties in an agreement should be given their usual, natural and ordinary meaning5 simply does not help TSC here. Unfortunately, it is not evident from the four corners of this document what the parties intended.
Where, as here, a contract is ambiguous, Tennessee courts have stated that " 'the course of previous dealings, the circumstances in which the contract was made, and the situation of the parties' " may be used as aids to determine the meaning of a contract and to arrive at the intention of the parties to the contract. Jeffers v. Hawn, 186 Tenn. 530, 212 S.W.2d 368, 370 (1948) (quoting Southern Pub. Ass'n v. Clements Paper Co., 139 Tenn. 429, 432, 201 S.W. 745, 746 (1918)); see also Kroger Co. v. Chemical Securities Co., 526 S.W.2d 468, 471 (Tenn.1975); Bank v. Crumley, 699 S.W.2d 164, 167-68 (Tenn.App.1985). Because I conclude that the Final Order was not unambiguous, I believe we are obliged to reverse. Whether the case should be unqualifiedly remanded for trial I cannot say at this juncture. Certainly the record before us so indicates. At the same time, I observe that the transcript of the state court proceedings and the Final Order were not among the records transferred to this court. This circumstance leads me to conclude that the review process employed in the bankruptcy and district courts was not thorough. In fairness, however, the courts had concluded that they were bound by what they saw as undisputed evidence of intent in the Final Order itself which, if correct, rendered irrelevant any earlier expression of the parties at odds with it.
Reference to the entire circumstances of this Final Order does not mean that extrinsic evidence may be used to modify or rewrite the settlement agreement. The Supreme Court of Tennessee has acknowledged that " [i]t is the function of a court to interpret and enforce contracts as they are written, notwithstanding they may contain terms which may be thought harsh and unjust. A court is not at liberty to make a new contract for parties who have spoken for themselves." See Smithart v. John Hancock Mutual Life Ins. Co., 167 Tenn. 513, 525, 71 S.W.2d 1059, 1063 (1934); see also Petty v. Sloan, 277 S.W.2d at 359. Further, " ' [n]o one disputes the proposition that you cannot vary the terms of a written contract nor contradict it by oral evidence, but these rules to not restrain the Court from a survey of the whole situation and an ascertainment of that which the parties had in mind and the purpose or object to be obtained by a proposed agreement.' " Kroger Co. v. Chemical Securities Co., 526 S.W.2d at 471 (quoting with approval from Frierson v. International Agricultural Corporation, 24 Tenn.App. 616, 148 S.W.2d 27, 37 (1940)); cf. Hamblen v. County v. City of Morristown, 656 S.W.2d at 335 ("The rule of practical construction.... long recognized and applied in this jurisdiction, is that the interpretation placed upon a contract by the parties thereto, as shown by their acts, will be adopted by the court and that to this end not only the acts but the declarations of the parties may be considered.").6
C. TSC's Argument on Merger of the Estates.
As an additional basis for affirmance, TSC argues on appeal that it was entitled to summary judgment based upon the purported merger of the estate when Tomlin agreed to "purchase" the lease. TSC relies upon the following language as stated to the state court on the record: "Number six, TSC agrees to sell its lease to Mr. Tomlin, Mr. Tomlin agrees to purchase it, and TSC agrees that Mr. Tomlin will be its leasing agent for the purpose of obtaining the new rental space." As an initial matter, there is no dispute that the acquisition by a landlord of a tenant's interests may effectuate a merger:
Since a person cannot be both landlord and tenant of the same property, it is a general rule that a tenancy for years, or a lesser tenancy, merges and is extinguished in a freehold estate when the tenancy and the freehold estate vest in the same person at the same time. Thus, where a leasehold estate for years merges in a greater estate or the reversion, the relationship of landlord and tenant which had been created by the estate is extinguished.
49 Am.Jur.2d Landlord & Tenant Sec. 994 (1970) (footnotes omitted). Assuming for the moment that this "purchase" language evidenced a termination of the lease, the most obvious problem with TSC's argument on this issue is the fact that this language does not appear in the Final Order. The bankruptcy court explicitly declined to look at evidence outside of the Final Order, believing that the Order was unambiguous. On remand, I would accord the parties an opportunity to marshal evidence relevant to whether the discrepancy between the agreement as read to the Chancery Court and as reflected in the Final Order was inadvertent or intentional. The absence of negotiations during this interim period obviously would militate against the conclusion that the settlement was intentionally altered.
TSC's merger argument also turns upon the precise issue I would hold was not adequately explored below. Not only are mergers not favored in the law, but whether a merger occurs largely turns on the intent of the parties. See, e.g., Browning v. Browning, 23 Tenn.App. 338, 132 S.W.2d 359, 361 (1939); see also 51C C.J.S. Landlord & Tenant Sec. 96. Looking at the "purchase" language of the agreement as read to the Chancery Court, it is far from clear that in isolation this language conveys an intent to terminate the lease as a matter of law. As one commentator has stated:
A lease for a term of years ... may be terminated by the merger of the term in the fee. Thus, the acquisition of the tenant's estate by the landlord usually terminates the lease, where it is accompanied by a surrender of the premises to the landlord. However, the law does not favor the doctrine of merger of leasehold into freehold when both estates meet in ownership of the same person, and termination of the lease does not always follow the acquisition of the tenant's estate by the landlord.
The controlling consideration is the intention expressed or implied, of the parties, and a merger effecting a termination will not be permitted contrary to such intent, nor will it be permitted where to do so would be inequitable....
51C C.J.S. Landlord & Tenant Sec. 96 (1968) (footnotes omitted). Without commenting on the strength of the argument, Tomlin contends that the "purchase" language indicated his intent to reacquire possession of the premises while maintaining the future rents income. Again, this dispute will largely turn on an adequate inquiry into intent and the surrounding circumstances of the settlement agreement.
Another factor may also prevent a merger. A merger may also be defeated where the rights of third parties would be jeopardized. As one Tennessee court has noted: "The doctrine of merger has its foundation in the convenience of the party interested, and therefore whenever the right of strangers, not parties to the act, that would otherwise work an extinguishment of the particular estate, require it, the two estates will still be considered as having a separate contingent." See Browning v. Browning, 132 S.W.2d at 361; see also 51C C.J.S. Landlord & Tenant Sec. 96. Not only does First American have a security interest in the fee, as evidenced by the deed of trust, but it obtained an assignment of the rents as additional security. Although it appears that First American Bank signed the Final Order, the record is insufficient to indicate the effect of any merger on its interests or the effect of its signing the Final Order.
The broader inquiry which I would hold to be warranted here is not necessarily an inquiry into the subjective motivations of a particular party. It is quite possible that the parties' words, actions, circumstances, and representations lead to one conclusion. If so, I argue a party's unexpressed intention to the contrary should not alter this conclusion. Tennessee courts recognize that a secret, unexpressed intent of one party to a contract is not binding upon the other party who has no notice of the secret intent. See Bill Walker & Associates v. Parrish, 770 S.W.2d 764, 770 (Tenn.App.1989); Cone Oil Co. v. Green, 669 S.W.2d 662, 664 (Tenn.App.1983); Malone & Hyde Food Services v. Parson, 642 S.W.2d 157, 159 (Tenn.App.1982); Ward v. Berry & Associates, Inc., 614 S.W.2d 372, 374-75 (Tenn.App.1981). In any event, I would not attempt to divine the parties' stated intent for the first time on appeal. The record is simply inadequate to permit this.
I cheerfully acknowledge that the majority's decision to affirm has the blessed virtue of reaching a result which more likely than not would ultimately obtain in all events after a trial on the merits. The course taken by the majority has great appeal for that reason. At the same time, however, these were sophisticated parties and if they had intended to terminate the lease and hence terminate the obligations to pay rent under the lease, it would seem to me that they were perfectly competent to say so quite plainly. That they did not in fact do so, and this seems in the final analysis to be acknowledged by the majority although it believes the intent was clearly expressed in other ways, then there is at least some plausibility in Mr. Tomlin's viewpoint. He may in fact have been playing both ends against the middle by insisting that TSC give him a firm date as to when it intended to vacate. At the same time if he had an alternative occupant in the State of Tennessee it is not at all implausible that he might want to protect himself and even TSC by making the premises available when he believed the state would need them. This could be so whether he was renting for his own account or was renting for TSC's account under the existing lease. I admit that this is not a likely scenario, but given the plain failure of the parties to say what so obviously would have resolved this entire conflict leaves me with a sufficient lingering doubt to conclude that the matter ought to be remanded at least for further proceedings if not for trial on the merits. Accordingly I respectfully dissent.
Tomlin also sought to recover lease commissions allegedly due to him under the court order. Because TSC did not find its new space through Tomlin, the bankruptcy court concluded that no commissions were due Tomlin. TSC also prevailed on its counterclaim for attorney's fees, which the lease provided would be paid by the unsuccessful party to any litigation brought to enforce the lease. Tomlin challenges neither of these rulings on appeal
First America Bank, the mortgagor, was also named as a defendant in the chancery court action, but the bank was dismissed during the course of the trial. TSC appealed this decision to the Tennessee Court of Appeals, which affirmed the dismissal. See TSC Indus., Inc. v. Tomlin, 743 S.W.2d 169 (Tenn.App.1987)
We note that the defendant's reliance on Roelk v. Hench, 5 Tenn.App. 153 (1926), for the proposition that TSC's obligation to pay rent was extinguished when it vacated the building pursuant to Tomlin's agreement to purchase the lease, is misplaced. Roelk did not address this issue at all. Instead, the issue in the case was whether and to what extent a mechanic's lien attached to a fee
The financial details of the 1982 sale agreement between TSC and Tomlin are well set forth in TSC Industries v. Tomlin, 743 S.W.2d 169, 170-71 (Tenn.App.1987)
The state court dismissed First American as a party on a directed verdict prior to the settlement. TSC appealed this decision to the Tennessee Court of Appeals, which affirmed the dismissal. See TSC Industries, Inc. v. Tomlin, supra note 1
Tomlin's brief indicates that the Chancery Court stated: "It appears to the court that insufficient cause exists for granting said motion pursuant to Rule 60.02." This order has not been provided to this court, however, nor did the bankruptcy or district courts consider the order. Without an adequate record on this issue, I decline to inquire into any potential preclusive effect of the state court's disposition
As authority for his proposition that " [t]here is a clear legal distinction between a lessee's vacating the leased premises and the early termination of a lease," Tomlin cites Wilson Management v. Star Distributors, 745 S.W.2d 870 (Tenn.1988) (plaintiff entitled to recover balance of rent due under a lease after defendant vacated premises). I recognize, however, that in Wilson the defendant actually abandoned the premises rather than vacating the premises pursuant to an agreement
While I do not specify what additional evidence may be material to create a genuine issue of fact within the meaning of Rule 56, I do observe that the actions of the parties and First American Bank with respect to the proposed new lease with the State of Tennessee would be particularly probative. The limited record before our court, at least, seems to evidence conduct which would throw light upon the intentions of one or the other, or even both of the parties. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 256 (1986) (citing First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 290 (1968))