Tetra Tech, Inc. v. Performa Entertainment Real Estate,Inc.

IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

August 21, 2008 Session

TETRA TECH, INC. v. PERFORMA ENTERTAINMENT REAL

ESTATE, INC.

Direct Appeal from the Circuit Court for Shelby County

No. CT-002235-05 Karen R. Williams, Judge

No. W2007-02244-COA-R3-CV - Filed October 3, 2008

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Reversed; and

Remanded

DAVID R. FARMER , J., delivered the opinion of the court, in which ALAN E. HIGHERS, P.J., W.S., and

J. STEVEN STAFFORD , J., joined.

Jeffrey A. Land, Germantown, Tennessee, for the Appellant, Tetra Tech, Inc.

Robert L. J. Spence, Jr. And Bryan Matthew Meredith, Memphis, Tennessee, for the appellee,

Performa Entertainment Real Estate, Inc.

OPINION

This is a contract action wherein the parties dispute which of two versions of a professional

services agreement is controlling. The trial court determined that the contract/counter-offer proffered

by Defendant buyer was the contract between the parties, and that there had been accord and

satisfaction when Plaintiff deposited Defendant’s check for the payment amount asserted by

Defendant. We reverse the trial court’s finding of accord and satisfaction. We further hold that the

contract found by the trial court to be the applicable contract is unenforceable where the contract

price is indefinite and where there was a lack of mutual assent to essential terms. We hold Plaintiff

is entitled to recover in quantum meruit for services rendered and remand for further proceedings

to determine that amount.

Background

Plaintiff/Appellant Tetra Tech, Inc., (“Tetra Tech”) is a publicly traded Delaware corporation

that provides consulting, engineering and technical services. Defendant/Appellee Performa

Entertainment Real Estate, Inc. (“Performa”) is a Tennessee corporation located on Beale Street in

Memphis. Performa manages and leases real property on Beale Street. Following oral negotiations,

on July 20, 2004, Tetra Tech sent its “Standard Agreement For Professional Services” to Performa

by fax. The agreement was for the design of compactor enclosures at three Beale Street locations

along Beale Street Alley between Third Street and Fourth Street. This project was part of a large

Beale Street improvement project which included the participation of the Center City Commission,

and was one of several projects for which Tetra Tech provided services.

The agreement faxed by Tetra Tech on July 20 recited a “Lump Sum Fee of $17,000 plus

reimbursable expenses” per an attached proposal breakdown. The contract also included and

referenced Attachment B-Proposal Breakdown for the scope of the services to be provided, and

recited that services would be performed in accordance with Attachment A, the terms and

conditions.1 It also provided: “This Agreement supersedes all prior agreements and understandings

and may only be changed by written amendment executed by both parties.” The signature lines were

located immediately following this provision. In addition to describing the scope of work,

Attachment B reiterated the lump sum fee of $17,000 and provided:

Per verbal agreement, Performa will pay a minimum of 10% of the construction cost

upon receipt of invoice and has committed to securing funding to pay the remainder

of the total fee. Tetra Tech recognizes that there may be some delay in receiving the

balance of the fee and will allow a grace period not exceeding 60 days.

Fees will be invoiced monthly based upon the percentage of services completed as

of the invoice date. Payment will be due within 30 days of the date of the invoice.

Outstanding balances of 30 days or more will accrue interest at 1.0% per month (12%

per annum).

Tetra Tech’s July 20 fax also included a budget estimate for enclosures at three locations and a cover

letter from its senior project manager, Adam Brown (Mr. Brown). Mr. Brown’s letter stated, in

relevant part:

Please find a Professional Services Agreement ready for execution - please sign and

return a copy. Language has been added to the Attachment B under “Fees and

Billing” in consideration of our discussion regarding Performa’s commitment to pay

a portion of the fees and secure funds from other sources for the remainder.

Performa’s President, John Elkington (Mr. Elkington), signed the first page of the contract

on July 21, 2004, and Performa faxed it to Tetra Tech on July 22, 2004. According to Tetra Tech,

it received only this one-page agreement via Performa’s return fax. Performa, however, asserts it

faxed four pages to Tetra Tech: the agreement, Attachment A, a modified version of Attachment B,

and Mr. Brown’s cover letter.

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Attachment A includes a choice of law clause stating that Tennessee law governs any claims relating to the

agreement.

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Tetra Tech completed the design work in July 2004. Apparently, at some point Performa

hired a contractor to perform some portion of the contracted work, and the parties agreed that final

contract amount would be reduced to $14,048.42. In August 2004, Tetra Tech mailed Performa an

invoice in the amount of $14,048.42 for services rendered through July 31, 2004. No payment was

received from Performa, and a dispute arose regarding whether Performa was the “real party” to the

contract and whether the contract had been “marked-up.”

In December 2004, Mr. Elkington advised counsel for Tetra Tech by letter that Performa had

never agreed to pay Tetra Tech $17,000. According to Mr. Elkington, Performa had agreed to pay

$3,500 and to “help them secure the balance of what they were owed from the Center City

Commission.” Mr. Elkington attached a copy of the agreement for services with a modified version

of Attachment B to his letter. The modified Attachment B consisted of a retyped attachment

containing a modified “Fee & Billing” provision. The provision, like the signed first page of the

agreement, recited a “lump sum fee” in the amount of $17,000. However, the modified typed section

provided:

Per our agreement, Performa will pay a minimum of 10% of the construction cost for

the three enclosures only upon receipt of invoice and has committed to help try to

secure funding to pay the remainder of the total fee. Tetra Tech recognizes that there

may be some delay in receiving the balance of the fee and will allow a grace period

not exceeding 60 days.

Fees will be invoiced monthly based upon the percentage of services completed as

of the invoice date. Payment will be due within 30 days of the date of invoice.

Outstanding balances of 30 days or more will accrue Interest at 1.0% per month

(12% per annum).

The section also included an undated handwritten notation, initialed by Mr. Elkington, stating:

Performa agrees to pay Tetra Tech $3,500 toward their bill and use their best efforts

to get the rest from the CCC.

In January 2005, Tetra Tech advised Mr. Elkington by letter that it would begin to pursue

collection options if the balance amount of $14,048.42, plus interest in the amount of $561.94, was

not received by January 28, 2005. In February 2005, Performa sent Tetra Tech a check for payment

in the amount of $3,500. The check included a notation that it was for full payment. The check was

negotiated by Tetra Tech on February 22. On March 10, Tetra Tech sent a letter to Performa

acknowledging “partial payment” and seeking an outstanding balance in the amount of $10,548.42,

plus interest. Performa asserted accord and satisfaction based on the negotiation of its February

payment, and in December 2005 Tetra Tech refunded Performa by cashier’s check in the amount of

$3,500. Tetra Tech continued to demand full payment. Performa apparently returned the cashier’s

check to Tetra Tech.

In April 2005, Tetra Tech filed a complaint against Performa in the Circuit Court for Shelby

County. In its complaint, Tetra Tech sought damages for breach of contract or, in the alternative,

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for recovery in quantum meruit. Tetra Tech attached the first page of the agreement for services

signed by Mr. Elkington to its complaint. It also attached the versions of Attachments A and B that

it had faxed to Performa on July 20, 2004.

In its answer, Performa denied that the version of the contract attached to Tetra Tech’s

complaint was a true copy of the contract between the parties. Performa asserted that the true

contract was the contract attached to its answer, which included modifications to Attachment B. It

asserted that Tetra Tech’s claim should be dismissed on the basis of accord and satisfaction where

Tetra Tech had accepted its tender of $3,500 as payment in full. Performa further asserted Tetra

Tech’s claims were barred by the doctrines of laches and equitable estoppel, and that its claim under

the doctrine of quantum meruit should be dismissed where Tetra Tech “may recover from other

unnamed third parties and has failed to exhaust its remedies against said parties.”

In October 2005, Tetra Tech moved to amend its complaint to add Mr. Elkington as a

Defendant. In its motion, Tetra Tech asserted Mr. Elkington had “attached a fraudulently altered

contract to [Performa’s] Answer” to its complaint. Tetra Tech asserted that, in its December 2004

letter to counsel for Tetra Tech, Performa had “fraudulently and deceptively stated” that the copy

of the contract “attached to his letter was a copy of the original contract document executed by him

on behalf of Performa.” Tetra Tech asserted the “fraudulent and unilateral change was made well

after the contract was executed, and well after work was performed.” Tetra Tech further asserted

Mr. Elkington was attempting to perpetrate a fraud on the court, and sought punitive damages in the

amount of $100,000.

Performa opposed Tetra Tech’s motion to amend, and the trial court denied the motion in

January 2006, and again in March 2007. In January 2007, the trial court also denied Performa’s

November 2006 motion for summary judgement. The matter was heard by the trial court in August

2007. The trial court entered judgment in favor of Performa in September 2007, and Tetra Tech filed

a timely notice of appeal to this Court.

Issues Presented

Tetra Tech presents five issues for our review. Succinctly stated, the issues raised by Tetra

Tech are:

(1) Whether the trial court erred by finding that the version of the contract

proffered by Performa contained the agreement of the parties.

(2) Whether the trial court erred by denying Tetra Tech’s motion to amend its

complaint to assert a cause of action against John Elkington for fraud.

(3) Whether the trial court erred by finding their had been accord and satisfaction

between the parties.

Standard of Review

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We review the trial court’s findings of fact de novo on the record, with a presumption of

correctness unless the evidence preponderates otherwise. Tenn. R. App. P. 13(d). Thus, we may not

reverse the trial court’s factual findings unless they are contrary to the preponderance of the

evidence. We review the trial court’s conclusions on matters of law de novo, with no presumption

of correctness. Tenn. R. App. P. 13(d); Bowden v. Ward, 27 S.W.3d 913, 916 (Tenn. 2000).

However, if the trial court fails to make findings of fact, our review is de novo with no presumption

of correctness. Archer v. Archer, 907 S.W.2d 412, 416 (Tenn. Ct. App. 1995). We review a trial

court’s determinations on matters of witness credibility with great deference and will not re-evaluate

a trial judge’s credibility determinations unless they are contradicted by clear and convincing

evidence. Wells v. Tenn. Bd. of Regents, 9 S.W.3d 779, 783 (Tenn. 1999). The interpretation of a

contract, or the “ascertainment of the intention of the parties to a contract,” is a question of law

which we review de novo. Doe v. HCA Health Servs. of Tennessee, Inc., 46 S.W.3d 191, 196 (Tenn.

2001).

Analysis

The proceedings in the trial court included substantial debate regarding whether Performa

sent and Tetra Tech received four pages by fax on July 22, 2004, including Attachment B as

modified by Performa. The trial court found that the “fax line,” the imprint made on the agreement

faxed by Performa to Tetra Tech, indicated that Tetra Tech received four pages via fax transmittal.

Upon review of the record, we agree that the first page of the agreement appears to indicate that it

was the fourth page transmitted. The trial court also found that the agreement purported to be the

true agreement between the parties was the agreement submitted by Performa. Because there is

nothing in the exhibits included in this record to definitively indicate whether Tetra Tech in fact

received the modified version of Attachment B, the resolution of this matter required a credibility

determination with respect to whether Performa’s fax to Tetra Tech included the modified

Attachment. The trial court found Trial Exhibit 9, the version of the contract submitted by Performa,

to be the final version of the contract between the parties. Because the evidence does not

preponderate against the trial court’s finding that Performa included the modified version of

Attachment B in it July 22, 2004, fax to Tetra Tech, and where Tetra Tech performed under the

contract, we affirm the trial court’s determination that the modified Attachment B is part of the

written contract. However, upon review of the entire record, it is clear to us that the parties

perceived Performa’s obligation regarding payment to Tetra Tech differently. We thus turn to

whether the contract proffered by Performa and found by the trial court to be the contract between

the parties is enforceable.

Enforceability of the Contract

It is well-established that a contract “must result from a meeting of the minds of the parties

in mutual assent to the terms, must be based upon a sufficient consideration, free from fraud or

undue influence, not against public policy, and sufficiently definite to be enforced.” HCA Health

Servs., 46 S.W.3d at 196 (citations omitted). A contract may not be enforceable where an essential

element, such as price or compensation terms, is determined to be indefinite. Id. Further, a contract

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must be sufficiently explicit so as to enable a court to determine the respective obligations of each

party. Id. An inexplicit contract price, or the recitation of a “reasonable price,” does not render a

contract unenforceable because of indefiniteness “[i]f the parties provide a practicable method for

determining [the] price or compensation.” Id. (quoting 1 Joseph M. Perillo, Corbin on Contracts,

§ 4.3, at 567-68 (Rev. ed. 1993)). Additionally, in the absence of a signature, manifestations of

assent, including a party’s actions or inactions, may demonstrate an intent to be bound. Moody

Realty Co. v. Huestis, 237 S.W.3d 666, 676 (Tenn. Ct. App. 2007)(citations omitted). The existence

of an enforceable contract resulting from a “meeting of the minds” is to be determined not only by

the words used, but in light of the parties’ acts, conduct, and the entirety of the circumstances. Id.

at 675.

Where the court determines a contract is unenforceable, it may prevent unjust enrichment by

permitting recovery in quantum meruit. HCA Health Servs., 46 S.W.3d at 197. Quantum meruit is

an equitable recovery by which a party may recover the reasonable value of the goods or services

it provided. Id. Recovery in quantum meruit may be awarded where (1) there is no enforceable

contract covering the subject matter; (2) the party seeking to recover proves that it has provided the

goods or services; (3) the party being charged has received those goods or services; (4) under the

circumstances, the parties reasonably should have understood that the party providing the goods or

services expected compensation; and (5) it would be unjust to permit a party to retain the goods or

services without payment. Id. at 198.

In this case, the compactor enclosure project was a minor element in a large Beale Street

improvement project that also involved the Center City Commission. Mr. Brown’s July 20, 2004,

cover letter to Performa, which was faxed to Performa along with the services agreement, clearly

evidences that Performa had “commit[ed] to pay a portion of the fees.” It also indicates Mr. Brown’s

understanding that Performa would “secure funds” for the balance from “other sources.” Thus, it

is clear that Tetra Tech was aware, from the outset, that Performa did not anticipate being fully

responsible for the entire contract amount absent assistance from “other sources,” including the

Center City Commission. However, assuming the version of the contract submitted by Performa is

the final written agreement, the contract does not contain a definite payment amount or payment

terms.

The contract found by the trial court to be the final agreement between the parties is a

bilateral contract between Tetra Tech and Performa. It definitively recites a “lump sum fee” in the

amount of $17,000 on two pages, including Attachment B. As modified by Performa, however,

Attachment B commits Performa to a payment in the amount of $3,500, and Performa asserts it is

not responsible for payment of the remainder of the agreed upon contract price. Further, the contract

contains no term stating that Performa would not be liable for the remainder of the lump sum fee

should its efforts to secure amounts in excess of $3,500 from the Center City Commission be

unsuccessful. In essence, then, Performa’s argument, as we understand it, is that Tetra Tech agreed

to a contract price of either $17,000 or $3,500, depending on whether Performa was able to secure

funding from sources not a party to the contract. There is nothing in the contract or the record,

however, to suggest that Tetra Tech agreed to simply forego most of its fee should Performa be

unable to secure funding from other sources. In short, the record does not demonstrate mutual assent

to an indefinite contract price. The contract is therefore unenforceable for indefiniteness and lack

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of mutual assent. We accordingly award Tetra Tech recovery in quantum meruit, and remand for

further proceedings to determine that amount.

Accord and Satisfaction

We next turn to whether the trial court erred in determining that there had been accord and

satisfaction between the parties where, during the course of the dispute, Performa tendered and Tetra

Tech negotiated a check in the amount of $3,500 which purported to be “payment in full,” where

Tetra Tech continued to demand the outstanding balance, and where Tetra Tech later returned the

payment amount. The party asserting the defense of accord and satisfaction bears the burden of

proving it. Quality Care Nursing Servs., Inc. v. C. B. Coleman, 728 S.W.2d 1, 5 (Tenn.

1987)(citations omitted). A party asserting accord and satisfaction

has the burden of proving the material allegations of his plea, an accord or new

agreement, inclusion of the item or items of indebtedness in the action or suit,

satisfaction by performance of the agreement or the agreement itself, that the

payment was offered on the condition that, if accepted it would be in full settlement

of the demand, and that the creditor understood the conditions of the tender, or the

circumstances under which it was made were such that he was bound to understand,

an acceptance by plaintiff in full satisfaction of his demand.

Id. (quoting Inland Equip. Co. v. Tennessee Foundry and Machine Co., 241 S.W.2d 564, 565-66

(Tenn. 1951)). Further, it is “essential that the creditor shall have accepted” the debtor’s tender

with the intention that it should operate as a satisfaction. Both the giving and the

acceptance in satisfaction are essential elements, and if they be lacking there can be

no accord and satisfaction. The intention of the parties, which is of course

controlling, must be determined from all the circumstances attending the transaction.

Id. (quoting Helms and Willis v. Unicio County, 64 S.W.2d 200, 202 (Tenn. 1933)(quoting Lytle v.

Clopton, 261 S.W. 644, 666 (Tenn. 1924 )(quoting 1 Corpus Juris, 529))).

The trial court relied on Sawner v. Smith Construction Co., 526 S.W.2d 492 (Tenn. Ct. App.

1975) for the proposition that accord and satisfaction was attained when Tetra Tech negotiated the

check in the amount of $3,500 tendered by Performa in February 2005. The trial court quoted this

Court’s observation in Sawner that “prior to the time a check is cashed, a debtor may waive,

extinguish or condition any statement thereon which would otherwise render the check a complete

accord and satisfaction upon being cashed by the creditor.” Sawner, 526 S.W.2d at 496. We

disagree with the trial court, however, that Sawner stands for the proposition that the tender and

negotiation of a check containing the notation “payment in full,” without more, evidences an accord

and satisfaction. In Sawner, we held that the “marking through of the words ‘Acct. in full’ by [the

creditor] ha[d] the effect of removing those words from the face of the check.” Id. We also noted

in Sawner, however, that in Cole v. Henderson, the supreme court held that the negotiation of a

check with a notation of “commission in full” was an accord and satisfaction where the creditor

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contacted the debtor and was advised that the amount was all the debtor would pay. Id. at 495 (citing

Cole v. Henderson, 454 S.W.2d 374 (Tenn. 1969)).

In Quality Care Nursing, the supreme court emphasized that an accord or agreement, “by

definition, requires consent of both parties, express or implied.” Quality Care Nursing, 728 S.W.2d

at 5. In that case, the court noted that “especially in the present age of data processing and computer

billing,” something more than “the mere receipt and cashing of a check marked as payment in full”

is required to demonstrate accord and satisfaction. Id. at 4. The Quality Care Nursing court held

that there had been no automatic accord and satisfaction despite the tender and negotiation of a check

marked as “payment in full” where there was no evidence that the debt was in dispute or that the

creditor ever agreed to accept an amount less than the full amount owed. Id. The court stated:

[i]t would be unrealistic in the modern business world for a debtor to send an

installment payment to a creditor, which may be receiving hundreds or thousands of

such checks, and to have the balance of his debt deemed discharged as a matter of

law simply because of a legend the debtor placed thereon, absent any other proof of

a compromise or settlement.

Id. at 5.

In this case, it is clear that Tetra Tech never agreed to accept payment in the amount of

$3,500 in satisfaction of what Tetra Tech asserted was the contract price. On the contrary, in March

2005 Tetra Tech advised Performa that it had received its “partial payment” in February, and that

it continued to seek payment for what it asserted was the full amount due. Performa has simply

failed to carry its burden of demonstrating accord and satisfaction. We reverse on this issue.

Tetra Tech’s Motion to Amend

We next turn to Tetra Tech’s assertion that the trial court erred by denying its motion to

amend its complaint to assert a cause of action against John Elkington for fraud. The Tennessee

Rules of Civil Procedure provide:

A party may amend the party’s pleadings once as a matter of course at any time

before a responsive pleading is served . . . . Otherwise, a party may amend the

party’s pleadings only by written consent of the adverse party or by leave of court;

and leave shall be freely given when justice so requires.

Tenn. R. Civ. P. 15.01. After a responsive pleading has been served, the denial of a motion to amend

the pleadings lies within the sound discretion of the trial court. Welch v. Thuan, 882 S.W.2d 792,

793 (Tenn. App. 1994); Merriman v. Smith, 599 S.W.2d 548, 559 (Tenn. App. 1979). As we noted

in Merriman, when deciding whether to grant leave to amend, a trial judge should consider facts

including undue delay in filing, lack of notice to the opposing party, bad faith by the moving party,

repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party,

and futility of amendment. Merriman, 599 S.W.2d at 559. Tetra Tech’s allegations of fraud are

rendered moot in light of the trial court’s finding that the contract as submitted by Mr. Elkington

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was, in fact, faxed to Tetra Tech and represented the agreement of the parties. Thus, we decline to

address this issue on appeal. See Union Realty Co. v. Family Dollar Stores of Tenn. Inc., 255

S.W.3d 586, 590 (Tenn. Ct. App. 2007)(holding a controversy must remain live throughout the

course of litigation, including the appeal process, or be dismissed as moot).

Holding

We hold that the contract found by the trial court to be the contract between the parties is not

enforceable for indefiniteness and lack of mutual assent. We further hold Performa failed to

demonstrate accord and satisfaction, and that Tetra Tech is entitled to recover in quantum meruit.

We remand this matter to the trial court for further proceedings to determine the amount to be

recovered by Tetra Tech in quantum meruit. Costs of this appeal are taxed to the Appellee, Performa

Entertainment Real Estate, Inc.

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DAVID R. FARMER, JUDGE

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