Estate of Darnell v. Fenn

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

November 5, 2008 Session

ESTATE OF BENJAMIN F. DARNELL, SR., ET AL. v.

CHARLES FENN, ET AL.

Appeal from the Chancery Court for Sevier County

No. 05-12-469 Telford E. Forgety, Jr., Chancellor

No. E2007-02696-COA-R3-CV - FILED FEBRUARY 27, 2009

Charles Fenn and Dott Fenn owned property in Sevier County. In August 1996, they entered into

a contract to sell the property to Benjamin F. Darnell, Sr. The Fenns agreed to finance the sale over

a ten-year period. According to the contract, Mr. Darnell was to make monthly payments of $999.11

for ten years, with one final balloon payment of $113,058.43. Mr. Darnell died in February 2004

and his wife, Mary Darnell, continued making the monthly payments. Unbeknownst to Ms. Darnell,

on October 14, 2005, the Fenns sold the property to Teddy Jones. Four days later, Ms. Fenn, through

her attorney, sent Ms. Darnell a letter terminating the contract based on various alleged breaches.

Ms. Darnell filed suit seeking specific performance of the contract. Following a bench trial, the

court found that the contract was enforceable; it ordered specific performance. The trial court

rejected the claim of the defendant Teddy Jones that he was a bona fide purchaser without

knowledge. The Fenns and Mr. Jones appeal. We affirm.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court

Affirmed; Case Remanded

CHARLES D. SUSANO , JR., J., delivered the opinion of the court, in which HERSCHEL P. FRANKS, P.J.,

and D. MICHAEL SWINEY , J., joined.

Jerry K. Galyon, Sevierville, Tennessee, for the appellants, Charles Fenn, Dott Fenn, and Teddy

Jones, Trustee.

David H. Parton, Gatlinburg, Tennessee, for the appellees, Mary J. Darnell, individually and as

personal representative of the Estate of Benjamin F. Darnell, Sr., and parent and next friend of

Jonathan J. Darnell and Melissa Darnell, both minors, Benjamin F. Darnell, Jr., Susan A. Reagan,

Dolly M. Darnell, Lilly M. Stoltz, Thomas E. Darnell, Marie E. Darnell, and William C. Darnell.

OPINION

I.

This is an action for specific performance originally brought by Mary Darnell, individually

and as personal representative of the estate of her late husband, Benjamin F. Darnell, Sr. (“the

decedent”). The complaint was originally filed on December 22, 2005. Thereafter, it was amended

to add various parties as additional plaintiffs (collectively referred to as “Plaintiffs”), all of whom

are heirs to the decedent’s estate. Plaintiffs claim that the decedent entered into a valid and

enforceable contract with the Fenns for the sale of the land located in Sevier County. Plaintiffs

sought to enforce the terms of that contract. According to the amended complaint:

[T]he Plaintiff Estate holds a contract for Sale and Purchase of real

property located in Sevier County, Tennessee, between [the

decedent] . . . and Defendants, Charles Fenn and wife, Dott Fenn,

dated August 2, 1996, a copy of said contract being of record . . . in

the Office of the Register of Deeds for Sevier County, Tennessee. . . .

That pursuant to the terms of the parties’ contract, the decedent was

purchasing from Defendants, Charles Fenn and wife, Dott Fenn, real

property improved by commercial buildings . . . .

That pursuant to the parties’ contract, the decedent, and subsequent

to the decedent’s death, the Plaintiff Estate paid all monthly payments

owing pursuant to the amortization schedule . . . and Defendants,

Charles Fenn and wife, Dott Fenn, have accepted all of said payments

excepting the November 2005 payment which was returned to the

Plaintiff.

That the decedent and the Plaintiff Estate made expensive

improvements to the existing buildings on the property, maintained

liability and casualty insurance on the property and have otherwise

fully complied with the terms of the parties’ agreement.

That the Defendants . . . waived any alleged default of the contract by

their actions [of] continuing to accept the benefits of the contract,

including all monthly payments with full knowledge of any alleged

default.

That Defendant, Dott Fenn, contacted the Personal Representative of

the Plaintiff Estate in 2005 and demanded that the Estate immediately

make the balloon payment which is not due until August 15, 2006,

pursuant to the parties’ agreement.

That the Plaintiff asserted the right to continue making payments in

accordance with the parties’ agreement due to the fact that the

administration of the Estate had not been concluded and that the

Personal Representative intended to distribute subject property to

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herself upon conclusion of the Estate and finance the amount required

to make the balloon payment in her own name.

That on October [18], 2005, Attorney Jerry K. Galyon sent Mary

Darnell . . . a letter stating that the parties’ agreement was terminated.

This letter asserted as grounds for termination that no action had been

taken by the Estate, that the buildings on the property had not been

maintained in their current condition or better, that the real property

taxes had not been paid, that late charges were owing, and that

insurance on the buildings had not been maintained. The Estate paid

the 2004 real estate taxes immediately upon receipt of said notice and

there is no basis for other allegations of default. . . .

That the Plaintiff estate decided to honor the demand of

Defendants . . . that the balloon payment be made immediately,

within two weeks of receipt of the notice of default. The Plaintiff

Estate made arrangements to distribute the Estate’s interest in the

purchase agreement to the decedent’s spouse, Mary Darnell, and

Mary Darnell obtained a loan commitment in order to complete the

purchase immediately.

The Defendant’s [sic] attorney failed to respond to calls from the

Plaintiff’s attorney and the bank’s attorney for the purpose of making

arrangements for the closing of the transaction. On November 16,

2005, and again on November 18, 2005, the Plaintiff’s attorney

forwarded written notice to the Defendant’s [sic] attorney that the

Plaintiff was exercising its right to prepayment of the outstanding

balance remaining on the contract . . . and requesting that the parties

proceed with closing immediately. . . .

(Paragraph numbering in original omitted.) Plaintiffs further alleged that, even though Mary Darnell

had notified the Fenns of her intent to prepay the outstanding balance of the loan, the Fenns

nevertheless sold the property to Teddy Jones, a trustee for an undisclosed principal. Plaintiffs

sought specific performance of the contract and damages for breach of that contract.

The contract (“the Contract”) was entered into on August 2, 1996. The title of the document

is “Deposit Receipt and Contract for Sale and Purchase.” The Contract refers to the Fenns as

“SELLER” and identifies Mr. Darnell d/b/a Waldens Creek Stables as “BUYER.” (Capitalization

in original.) The Contract also contains an amortization schedule. The amortization schedule

reveals a purchase price of $132,000, less a $5,000 deposit. Of the remaining $127,000 owed, the

decedent was to make monthly payment of $999.11 for ten years. After ten years, the balance of

$113,058.43 was to be made in one balloon payment. Financing was provided by the Fenns. The

Contract states:

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CLOSING AND POSSESSION: This contract shall be closed and the

deed delivered on or before August 1, 2006, unless extended by other

provisions of this contract. . . . Possession of the property shall be

delivered to BUYER at closing . . . .

(Capitalization in the original.)

Attached to the Contract is an Addendum. The Addendum again refers to the parties as

“BUYER” and “SELLER” and then lists several additional provisions. These provisions are:

The tenant agrees to lease the above described property under the

following terms for a period of 10 years (120 months)[:]

The lease payment shall be $999.101 per month for 120 months with

a Balloon payment of $113,058.43.

The tenant agrees to maintain the existing buildings in their current

condition or better.

No buildings shall be removed from the property without written

approval of the landlord.

The tenant shall be responsible for the property taxes and insurance

on the building as they become due. The landlord will provide tenant

with copies of these expenses. Property taxes and insurance will be

pro-rated to the date of closing.

The tenant shall carry liability insurance with the landlord as co-

insured for all claims arising during the term of this lease and any

extensions.

A late charge of 5% will be charged for any payment received 10

days after the due date.

The tenant shall have the right to pre-pay this lease in whole or in part

at his option at any time during the lease.

1

Although insignificant, the amortization schedule calls for monthly payments of $999.11, and the Addendum

indicates the payment to be $999.10.

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Earnest money in the amount of $5,000 will be considered prepaid

lease payments. . . . 2

(Paragraph numbering in original omitted; footnote added.)

Approximately one month after the complaint was filed, the new purchaser, Teddy Jones,

went to the subject property. As best we can tell from the record, the decedent’s son, Benjamin F.

Darnell, Jr., and several other individuals were living on the property and/or working at the stables.

When the decedent’s son and the others refused to leave, Mr. Jones filed criminal trespass warrants

and the people on the property were forcibly removed.

Plaintiffs sued the Fenns and Mr. Jones (collectively referred to as “Defendants”).

Defendants answered the complaint and generally denied any liability to Plaintiffs. The Fenns then

filed a counterclaim seeking a declaratory judgment that Plaintiffs had materially breached the terms

of the contract and that the Fenns were acting legally when they terminated the contract.

Following a trial, the court entered a judgment finding that the Contract was enforceable.

The trial court ordered Ms. Darnell to pay the remaining balance on the Contract and divested Mr.

Jones of title to the property. Prior to entering its judgment, the trial court made several findings

from the bench. Initially, the trial court determined that the Contract was a ten-year lease “with

purchase at the end of ten years.” The court reached this conclusion for several reasons, including

the fact that there was a balloon payment at the end of the lease as well as an amortization schedule

attached to the Contract, neither of which would be present or necessary if it was simply a lease. The

court further stated:

[I]n many ways, [this lawsuit] comes down to this. Has this

agreement of August 2, 1996, was it, validly terminated? Was it

validly terminated as against the Darnells prior to the time the

property was sold to Teddy Jones? The Court is constrained to hold

that this Agreement was not validly terminated prior to the sale to

Teddy Jones. It is clear to the Court, it is abundantly clear to the

Court that early on, at least, there were multiple - multiple defaults in

this Agreement on the part of the Darnells. There’s just no question

about that. . . . However, the parties went to court . . . in 2002 over

those defaults and over this Agreement . . . and they settled their

differences in 2002. They settled them. What that means is anything

that came before 2002, . . . any default that came before 2002 is

beside the point now. . . . The parties settled their differences as they

existed at that time in September 2002. When you do that, you can’t

come back and complain about something that happened before that

2

As already stated, the Contract is titled “Deposit Receipt and Contract for Sale and Purchase” and numerous

times throughout identifies the parties as “BUYER” and “SELLER.” It is unclear why the Addendum initially refers

to the parties as “BUYER” and “SELLER” and then later refers to them as “Landlord” and “Tenant.” The trial court

found that the document was a ten-year lease “with purchase at the end of 10 years.”

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time. Now, what has happened since that time and that’s really where

this case comes down. . . . [I]t’s not payment of the monthly

payments for sure because Ms. Fenn herself testified that, “Look,

since that time, since the settlement in 2002, the payments were

always current.” They were always current, or, in her words, “I

would have foreclosed immediately.”

The trial court then discussed various items contained in the letter to Ms. Darnell from the

Fenns’ attorney dated October 18, 2005, which set forth various reasons why the Fenns were

terminating the Contract. The trial court discussed each of the grounds that were given for

terminating the Contract, beginning with the claim that “[n]o action has been taken by the estate.”

As to this ground, the trial court found that the “bottom line” is that “the estate didn’t have to take

any action. All the estate had to do was to keep making the payments on time, which they were.”

The next ground involved the Darnells being late paying the 2004 property taxes. The trial court

noted that the Contract provided that the Fenns would send to the Darnells the property tax notices.

However, “for some reason they stopped sending [the notices] to [the Fenns] from the courthouse.”

Because it was the Fenns’ duty to provide the notice to the Darnells and because that did not happen,

the trial court found there was no breach when the 2004 taxes were paid late.

Next, the trial court discussed the Fenns’ claim that the Darnells did not maintain insurance

on the property. The trial court observed that even though there had been some “problems” with the

insurance and the Darnells almost had their insurance policy cancelled, the fact remained that it was

not cancelled. The court noted that the property was, at all relevant times, insured. Finally, the trial

court discussed the Fenns’ argument that the Darnells failed to maintain the condition of the property

in the condition that existed at the inception of the Contract. According to the trial court:

The Court holds that the Darnells were entitled, . . . [and after Mr.

Darnell’s death], his heirs were entitled to notice, notice of an intent,

notice of default in the lease and of the intent to cancel the lease if the

defaults were not cured. Now, I’ve listened closely to be sure. Ms.

Fenn has testified, and so has Ms. Darnell testified that the year after

[Mr. Darnell] died which that would put it in the year 2005, Ms. Fenn

went to Ms. Darnell and met with her and talked about the property

and talked about the condition of the property. There’s no question

in the Court’s mind about that, and Ms. Fenn told Ms. Darnell,

“You’re going to have to clean it up, and by the way, I want you to

buy it. I would like for you to go ahead and pay . . . the balloon

payment . . . and buy it.” The Court’s convinced that happened.

What did not happen at that point and time was that Ms. Fenn did not

say, “If you don’t get that done within 30 days, 40 days, or 50 days

. . . I’m going to terminate this lease.” She did not put the Darnells

on notice that “Look, if you don’t do this, I’m going to terminate this

lease.” . . . [Counsel for Plaintiffs] has referred to certain case law on

commercial leases; and this property . . . had commercial buildings

that had been put to commercial use. . . . The case law holding that

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before you can terminate a long-term lease, you’ve got to notify them.

You’ve got to notify the tenant of the claim to default and give him

or her an opportunity to cure it. . . . The letter of October 18 does not

purport to give any such cure period. It just says the lease is

terminated. Beyond that, the Court notes that in effect the property

was sold or at the very least contracted for . . . before the letter went

out terminating the lease. . . . The deed itself [to] Teddy Jones was

signed by the Fenns, the sellers, October 14, four days before the

lease was purported to be terminated.

Lastly, the trial court found that Mr. Jones was not a bona fide purchaser without notice. In reaching

this conclusion, the court pointed out that the Darnells had recorded their lease nine days before the

deed to Jones was recorded. The trial court also pointed out that Mr. Jones testified that he had been

told that this property was in foreclosure and that attorney Galyon’s office was handling the

foreclosure. Therefore, he knew that someone was claiming an interest in the property.

The trial court concluded by ordering that Ms. Darnell was entitled to purchase the property

and a decree of specific performance would be entered. The trial court gave Ms. Darnell thirty days

to close on the remaining balance owed under the Contract.

II.

The Fenns and Mr. Jones appeal the trial court’s final judgment, raising a combined four

issues. First, the Fenns claim that the Contract was not enforceable because it was unclear as to

whether it was a contract for sale or a lease. Second, the Fenns claim the trial court’s judgment was

in error because they had a right to terminate the lease because it was materially breached. Third,

the Fenns argue that they gave adequate notice of termination of the lease and the trial court’s

judgment in this respect was in error. Finally, the Fenns and Jones claim that Jones was a bona fide

purchaser for value and the trial court’s judgment in this respect must be reversed.

III.

A review of findings of fact by a trial court is de novo upon the record of the trial court,

accompanied by a presumption of correctness, unless the preponderance of the evidence is otherwise.

Tenn. R. App. P. 13(d); Brooks v. Brooks, 992 S.W.2d 403, 404 (Tenn. 1999). Review of questions

of law is de novo, without a presumption of correctness. See Nelson v. Wal-Mart Stores, Inc., 8

S.W.3d 625, 628 (Tenn. 1999).

Trial courts, unlike appellate courts, are able to observe witnesses as they testify and to assess

their demeanor and other indicia of credibility; trial courts are in a unique position to evaluate

witness credibility. See State v. Pruett, 788 S.W.2d 559, 561 (Tenn. 1990). Accordingly, appellate

courts will not re-evaluate a trial court’s assessment of witness credibility absent clear and

convincing evidence to the contrary. See Wells v. Tennessee Bd. of Regents, 9 S.W.3d 779, 783

(Tenn. 1999), Humphrey v. David Witherspoon, Inc., 734 S.W.2d 315, 315-16 (Tenn. 1987).

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IV.

In Marshall v. Jackson & Jones Oils, Inc., 20 S.W.3d 678 (Tenn. Ct. App. 1999), this Court

observed that:

The purpose of interpreting a written contract is to ascertain and to

give effect to the contracting parties’ intentions. See Bob Pearsall

Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d 578, 580

(Tenn. 1975); Gredig v. Tennessee Farmers Mut. Ins. Co., 891

S.W.2d 909, 912 (Tenn. Ct. App. 1994). In the case of written

contracts, these intentions are reflected in the contract itself. Thus,

the search for the contracting parties’ intent should focus on (1) the

four corners of the contract, see Whitehaven Community Baptist

Church v. Holloway, 973 S.W.2d 592, 596 (Tenn. 1998); Hall v.

Jeffers, 767 S.W.2d 654, 657-58 (Tenn. Ct. App. 1988), (2) the

circumstances in which the contract was made, see Penske Truck

Leasing Co. v. Huddleston, 795 S.W.2d 669, 671 (Tenn. 1990);

Pinson & Assocs. Ins. Agency, Inc. v. Kreal, 800 S.W.2d 486, 487

(Tenn. Ct. App. 1990), and (3) the parties’ actions in carrying out the

contract. See Hamblen County v. City of Morristown, 656 S.W.2d

331, 335 (Tenn. 1983); Ballard v. North Am. Life & Cas. Co., 667

S.W.2d 79, 84 (Tenn. Ct. App. 1983).

In the absence of fraud or mistake, courts should construe contracts

as written. See Frank Rudy Heirs Assocs. v. Sholodge, Inc., 967

S.W.2d 810, 814 (Tenn. Ct. App. 1997); Whaley v. Underwood, 922

S.W.2d 110, 112 (Tenn. Ct. App. 1995). The courts should accord

contractual terms their natural and ordinary meaning, see Evco Corp.

v. Ross, 528 S.W.2d 20, 23 (Tenn. 1975), and should construe them

in the context of the entire contract. See Wilson v. Moore, 929

S.W.2d 367, 373 (Tenn. Ct. App. 1996); Rainey v. Stansell, 836

S.W.2d 117, 119 (Tenn. Ct. App. 1992). The courts should also

avoid strained constructions that create ambiguities where none exist.

See Hillsboro Plaza Enters. v. Moon, 860 S.W.2d 45, 47 48 (Tenn.

Ct. App. 1993).

The courts may not make a new contract for parties who have spoken

for themselves, see Petty v. Sloan, 197 Tenn. 630, 640, 277 S.W.2d

355, 359 (1955), and may not relieve parties of the contractual

obligations simply because these obligations later prove to be

burdensome or unwise. See Atkins v. Kirkpatrick, 823 S.W.2d 547,

553 (Tenn. Ct. App. 1991). Thus, when called upon to interpret a

contract, the courts may not favor either party. See Heyer-Jordan &

Assocs., Inc. v. Jordan, 801 S.W.2d 814, 821 (Tenn. Ct. App. 1990).

However, when a contract contains ambiguous provisions, those

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provisions will be construed against the party responsible for drafting

them. See Hanover Ins. Co. v. Haney, 221 Tenn. 148, 153-54, 425

S.W.2d 590, 592-93 (1968); Burks v. Belz-Wilson Properties, 958

S.W.2d 773, 777 (Tenn. Ct. App. 1997).

Marshall, 20 S.W.3d at 681-82.

The Fenns’ first argument is that the Contract is unenforceable because it is ambiguous and

impossible to determine if it is a contract for sale or a lease. The Fenns claim that other portions of

the Contract are ambiguous as well, such as its failure “to specify the amount of insurance that the

tenant must carry.” The trial court found that the Contract was an enforceable ten-year lease with

purchase at the end of the ten years. As discussed previously, the Contract contained an amortization

schedule showing the amount of principal and interest in each monthly payment. The Contract states

that “this contract shall be closed and the deed delivered on or before August 1, 2006, unless

extended by other provisions of this contract.” The original sale price was $132,000. A down

payment of $5,000 was made, bringing the amount owing to $127,000. At the end of ten years, the

amount still owing after credit for 10 years of monthly payments was $113,058.43, which was the

amount of the balloon payment.

As the trial court correctly noted, if the Contract were only a lease, there would be no reason

for a balloon payment. Ms. Fenn certainly believed and acted like the Contract was a contract for

sale, as evidenced by her request to Ms. Darnell in the spring of 2005 that the sale be completed and

the balloon payment be paid early. While the Contract is not an example of perfect clarity, there is

no doubt that all of the parties to the Contract understood that Mr. Darnell ultimately would be

purchasing the property. The terms of the Contract were clear enough for the parties to operate

under it for almost a decade. Furthermore, the terms of the Contract were clear enough for the Fenns

to successfully take Mr. Darnell to court to enforce those terms. The Fenns cannot now be heard to

complain about whether the Contract is sufficiently definite in an attempt to avoid their contractual

obligations. When looking at “(1) the four corners of the contract[;] . . . (2) the circumstances in

which the contract was made[;] . . . and (3) the parties’ actions in carrying out the contract”, see

Marshall, 20 S.W.3d at 681-82, we conclude that the Darnells had the right to purchase the land in

question at the end of ten years and that the Contract was not merely a lease. Therefore, we affirm

the judgment of the trial court on this issue.

The next two issues are whether the Fenns had the right to terminate the Contract due to the

Darnells’ alleged breaches, and whether the Contract was properly terminated. On appeal, the Fenns

argue that there were two breaches: the failure to timely pay the 2004 property taxes and the failure

to maintain the property in the same condition it was in at the time the Contract was entered into.

The trial court correctly determined that any alleged defaults that occurred prior to 2002 were

resolved when the lawsuit brought by the Fenns against Mr. Darnell was settled. As to the property

taxes, the Contract required the Fenns to send the Darnells the tax statement. Ms. Fenn

acknowledged that she failed to do so and that when her attorney notified Ms. Darnell that the taxes

were past due, the taxes were paid. Since Ms. Fenn did not comply with her contractual obligation,

the failure of Mr. Darnell to timely pay the taxes cannot be considered a material breach, especially

since they were eventually paid and the taxes brought current.

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The Fenns argue that the condition of the property was not maintained and this matter was

discussed with Ms. Darnell in the spring of 2005. They claim this was sufficient notice. However,

no further mention of a claimed breach was made to Ms. Darnell and the Fenns continued to accept

rent/mortgage payments for many more months, up until November 2005 when they abruptly

notified Ms. Darnell that the Contract was terminated. When the Contract was terminated, the Fenns

had already found a new buyer and deeded the property to Mr. Jones four days before they notified

Ms. Darnell that the Contract was terminated.

Plaintiffs argue that the Fenns are estopped to deny a material breach and rely on Mayor and

Alderman of Town of Morristown v. Davis, 110 S.W.2d 337 (Tenn. 1937), where the Supreme

Court said:

We perceive no difference whatever between the principle involved

in this case and those growing out of leases, containing a clause that

the term shall cease, and be absolutely determined, by a default in the

payment of rent. In such cases, it is well settled that if the landlord,

after the default, accepts the rent, he thereby waives the forfeiture,

and cannot afterwards insist upon it; and much less will the tenant be

allowed to say that he is discharged from his covenants by his own

default in the payment of rent.

Id. at 341.3

The course of dealing between the parties herein is also relevant. In Lively v. Drake, 629

S.W.2d 900 (Tenn. 1982) the Supreme Court discussed an acceleration clause in a contract as

follows:

We are of the opinion that the course of dealing between the parties

over a period of almost two years was such that appellants had been

led to believe that irregular payments would be accepted without

acceleration. Under those circumstances appellee should not be

permitted to foreclose on the note without first calling attention of

appellants to the fact that he was insisting upon the original terms,

and that no further irregular payments would be accepted. He should

have afforded them an opportunity to make current any arrears, if

such existed.

3

Plaintiffs also analogize to T.C.A. § 66-28-508 (2004) of the Uniform Residential Landlord and Tenant Act

which provides:

If the landlord accepts rent without reservation and with knowledge of a tenant

default, the landlord by such acceptance condones the default and thereby waives

such landlord’s right and is estopped from terminating the rental agreement as to

that breach.

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* * *

As stated, under controlling Tennessee cases the acceptance of partial

payment by the creditor after declaration of default did not, in and of

itself, preclude foreclosure. Nevertheless the prior course of dealings

between these parties was such that appellee was not entitled to

exercise his option to accelerate without first advising appellants that

late payments would no longer be accepted and without giving them

an opportunity to cure any default that then existed. See Brown v.

Hewitt, 143 S.W.2d 223 (Tex. Civ. App. 1940); 55 Am.Jur.2d,

Mortgages § 391 (1971); Annot., 97 A.L.R.2d 997, 1006 et seq.

(1964); Cf. American National Insurance Co. v. Davidson, 166 Tenn.

13, 57 S.W.2d 788 (1933) (irregular payment and acceptance of

insurance premiums); Mayor and Aldermen of Morristown v. Davis,

172 Tenn. 159, 110 S.W.2d 337 (1937).

Under all of the circumstances, we are of the opinion that the result

reached by the Chancellor was equitable and appropriate.

Lively, 629 S.W.2d at 904.

The Contract at issue in this case, like every other contact entered into in this state, contains

an implied duty of good faith and fair dealing. In Brooks v. Networks of Chattanooga, Inc., 946

S.W.2d 321, 326 (Tenn. Ct. App. 1996) we noted that “[i]t is well-settled that every contract contains

an implied duty of good faith and fair dealing in its performance and enforcement.” (citing TSC

Industries, Inc. v. Tomlin, 743 S.W.2d 169, 173 (Tenn. Ct. App.1987); Hurley v. Tennessee

Farmers Mutual Ins. Co., 922 S.W.2d 887 (Tenn. Ct. App. 1995)).

The facts establish that in the spring of 2005, Ms. Fenn told Ms. Darnell to clean up the

property and then requested that Ms. Darnell make the balloon payment early, thereby completing

the contract of sale. This would certainly lead Ms. Darnell to conclude that Ms. Fenn had every

intention of completing the sale notwithstanding any problems with the condition of the property.

Thereafter, Ms. Darnell continued to make the monthly payments on time and Ms. Fenn continued

to deposit the checks for several months. After the Darnells had completed over 9 of the 10 years

on the Contract, and even though several months earlier Ms. Fenn had indicated that she wanted the

sale completed, the Fenns abruptly terminated the Contract without any forewarning to Ms. Darnell

and deeded the property to Jones several days before even notifying Ms. Darnell that they considered

the Contract terminated. Based on these facts, we conclude that Ms. Fenn unquestionably led Ms.

Darnell to believe that she fully intended to proceed with the sale, notwithstanding the condition of

the property. Ms. Fenn thereafter continued to accept monthly payments without protest for months

and then, four days before pulling the rug out from under Ms. Darnell, Ms. Fenn deeded the property

to Mr. Jones. We do not believe telling Ms. Darnell to clean up the property is sufficient to put Ms.

Darnell on notice that Ms. Fenn was claiming a breach when the complaint as to the condition of the

property was coupled with a request to complete the sale early. We also conclude that the actions

of Ms. Fenn were a clear violation of her duty of good faith and fair dealing. Therefore, we hold that

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Ms. Fenn is estopped from claiming Ms. Darnell was in breach of the Contract regardless of whether

there actually was a breach pertaining to the condition of the property and regardless of whether Ms.

Fenn was required to give adequate notice of the breach. The result reached by the trial court was

manifestly “equitable and appropriate.” See Lively, 629 S.W.2d at 904.

The final issue is whether Mr. Jones was a bona fide purchaser without notice. In Aslinger

v. Price, No. E2006-00029-COA-R3-CV, 2006 WL 2521566 (Tenn. Ct. App. E.S., filed Sept. 1,

2006), perm. app. denied Jan. 29, 2007, this Court stated:

This court has recently defined “bona fide purchaser” as “one who

buys something for value without notice of another’s claim to the

item or of any defects in the seller’s title; one who has in good faith

paid valuable consideration for property without notice of prior

adverse claims.” Rogers v. The First Nat'l Bank, C/A No. M2004-

2414-COA-R3-CV, 2006 WL 344759 at *12 (Tenn. Ct. App. M.S.,

Feb. 14, 2006)(emphasis added); accord Henderson v. Lawrence, 212

Tenn. 247, 369 S.W.2d 553, 556 (Tenn. 1963)(stating “A bona fide

purchaser is one who buys for a valuable consideration without

knowledge or notice of facts material to the title”).

As already stated, the trial court found that Mr. Price “was on inquiry

notice of the existence of that [Aslinger-Giesemann] contract.” There

is abundant proof in the record supporting this conclusion, and the

evidence does not preponderate against it. . . . [A]s the purchaser, Mr.

Price was “(c)hargeable with notice, by implication, of every fact

affecting the title which would be discovered by an examination . . .

of every fact as to which the purchaser, with reasonable prudence or

diligence, ought to become acquainted.” Hall v. Hall, 604 S.W.2d

851, 853 (Tenn. 1980), quoting Teague v. Sowder, 121 Tenn. 132,

114 S.W. 484, 489 (Tenn. 1908).

Moreover, this court has specifically held that “[a] contract or

agreement to convey is held to be such an interest as will prevail as

against a subsequent purchaser with notice.” Williams v. Title

Guaranty & Trust Co., 31 Tenn. App. 128, 212 S.W.2d 897, 901

(Tenn. Ct. App. 1948). Regarding the concept of “inquiry notice,”

the Williams court stated as follows:

Notice of a prior interest which will be effective to

charge a subsequent purchaser with knowledge of its

existence may be either direct information of the prior

right, or may consist of information of facts from

which actual knowledge may be inferred; the notice

need not be actual, but may be constructive or

implied. It need not contain complete information of

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every fact material for the purchaser to know. Where

actual notice of an outstanding interest is duly given,

the purchaser is chargeable with notice of all that an

inquiry of the person giving the notice of the

outstanding interest would have disclosed.

***

Notice is either actual or implied. When anything

appears which would put a man of ordinary prudence

upon inquiry, the law presumes that such inquiry was

actually made, and therefore fixes the notice upon him

as to all legal consequences.

Williams, 212 S.W.2d at 901; see also Texas Co. v. Aycock, 190

Tenn. 16, 227 S.W.2d 41, 46 (Tenn. 1950)(stating “whatever is

sufficient to put a person upon inquiry, is notice of all the facts to

which that inquiry will lead, when prosecuted with reasonable

diligence and good faith.” [emphasis in original]); City Finance Co.

v. Perry, 195 Tenn. 81, 257 S.W.2d 1, 2 (Tenn. 1953); Blevins v.

Johnson County, 746 S.W.2d 678, 682-83 (Tenn. 1988).

Aslinger, No. E2006-00029-COA-R3-CV, 2006 WL 2521566, at *4-5 (emphasis in original).

At trial, Mr. Jones testified that he heard the subject property was in foreclosure and that the

Fenns’ attorney, Jerry Galyon, was handling the foreclosure. Mr. Jones called attorney Galyon’s

office and spoke with Mr. Galyon’s secretary, at which time he learned that the property was

available for sale and the price was $113,058.43.4 Mr. Jones acknowledged that attorney Galyon was

also his attorney for civil litigation matters. In fact, Mr. Jones testified that he and Galyon are

friends and ride motorcycles together. Other than a title search, Galyon was the attorney for both

the Fenns and Mr. Jones for the transaction where the latter purchased the property. Mr. Jones also

testified that he knew Mr. Darnell, that Mr. Darnell had passed away, and that Mr. Darnell owned

the Walden Creek Riding Stables located on the property.

As quoted by this Court in Aslinger, the Supreme Court in Texas Co. v. Aycock, 190 Tenn.

16, 227 S.W.2d 41, 46 (Tenn. 1950) stated that “whatever is sufficient to put a person upon inquiry,

is notice of all the facts to which that inquiry will lead, when prosecuted with reasonable diligence

and good faith.” (emphasis in original). Aslinger, 2006 WL 2521566, at *5. We believe Mr. Jones

had sufficient inquiry notice that Ms. Darnell and her husband’s estate were claiming an ownership

interest in the property. There is absolutely no doubt that they were claiming such an interest and

that attorney Galyon knew of that interest, as abundantly evidenced by Galyon’s letter of October

18, 2005, terminating the Contract. Given that Mr. Jones and the Fenns had the same attorney and

4

This amount is the exact same amount as Ms. Darnell’s final balloon payment.

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Jones knew this, if Mr. Jones had acted reasonably he would have spoken to Galyon himself, as

opposed to Galyon’s secretary, and made further inquiry about the property. This is even more

apparent when considering that Mr. Jones and Galyon are friends. In short, a simple phone call to

the right person would have prevented this litigation. A reasonable inquiry would have lead Mr.

Jones to the fact that there was a contract for sale on the property, even if the validity of that contract

was being questioned by the Fenns. Accordingly, we conclude that the facts do not preponderate

against the trial court’s conclusion that Mr. Jones was not a bona fide purchased without notice.

In summary, we conclude that the facts do not preponderate against the trial court’s finding

that pursuant to the Contract, Ms. Darnell is entitled to purchase the property. We further affirm the

trial court’s finding that Jones was not a bona fide purchaser without notice.

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V.

The judgment of the trial court is affirmed. This case is remanded for enforcement of the

trial court’s judgment and for collection of costs assessed below, all pursuant to applicable law.

Costs on appeal are taxed to the appellants, Charles Fenn and Dott Fenn, and their surety, for which

execution may issue, if necessary.

_______________________________

CHARLES D. SUSANO, JR., JUDGE

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