Essie James v. Petra Finance, LLC

04/28/2026

IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

June 18, 2025 Session

ESSIE JAMES AND WILLIAM JAMES v. PETRA FINANCE, LLC, ET AL.

Appeal from the Chancery Court for Shelby County

No. CH-15-0269-1 Melanie Taylor Jefferson, Chancellor

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No. W2024-00795-COA-R3-CV

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This case involves a petition for rescission of a mortgage loan based on fraud in the

inducement. The trial court granted summary judgment to the defendants on two separate

grounds. The first basis for the trial court’s grant of summary judgment was that the

plaintiff sought rescission of the loan transaction but admitted that he could not repay the

amount he received in the transaction and also admitted that he could not restore the status

quo if the note and deed of trust were rescinded. Because the plaintiff was unable to place

the parties in their prior status, the trial court found that he was not entitled to rescission.

Next, the trial court found that the plaintiff failed to identify any misrepresentation made

by the original lender and only alleged misrepresentation by the mortgage broker, who was

not a party to this lawsuit. The trial court found that the plaintiff failed to present any

evidence or legal theory showing that the mortgage broker was acting as an agent of the

original lender, so his statements were not attributable to the defendants. The plaintiff

appeals. We affirm.

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

Affirmed and Remanded

CARMA DENNIS MCGEE, J., delivered the opinion of the court, in which J. STEVEN

STAFFORD, P.J., W.S., and KRISTI M. DAVIS, J., joined.

Webb A. Brewer, Memphis, Tennessee, for the appellant, William Z. James.

Bret J. Chaness and Patricia Whitehead, Peachtree Corners, Georgia, for the appellees,

Petra Finance, LLC, and Clear Springs Loan Services, Inc.

MEMORANDUM OPINION1

I. FACTS & PROCEDURAL HISTORY

This case arises out of the purchase of a home in 2005, and the litigation has now

been pending for over a decade. We will only recount the procedural history of the

litigation to the extent that it is relevant to the issues on appeal.

William James instituted this lawsuit in 2015 by filing a petition to enjoin a

foreclosure sale, for rescission of his mortgage loans, and for damages. Pertinent to this

appeal, the complaint alleged that Mr. James was fraudulently induced to enter into the

loan documents for his first and second mortgage in 2005 based on misrepresentation by

his mortgage broker. Specifically, Mr. James alleged that the original lender had paid the

mortgage broker a “Yield Spread Premium” of $2,049.75 for arranging the loans. The

complaint alleged that a “yield spread premium” is essentially a “kickback” paid by a

lender to a mortgage broker for arranging a loan that is more profitable to the lender than

one for which the borrower was qualified, generally with a higher interest rate and/or

excessive fees. The complaint alleged that this was fraudulent and sought “rescission and

restitution based on fraud in the inducement of a loan transaction.” The complaint noted

that the servicing of the loans was transferred to other entities after closing. It also noted

that Mr. James had subsequently entered into a loan modification agreement. According

to the complaint, the servicing of the mortgage “changed hands several times,” and by the

time of the litigation, it was being serviced by Clear Springs Loan Services, Inc. The

complaint stated that Mr. James had received a notice of foreclosure sale indicating that

Petra Finance, LLC, currently owned the beneficial interest of the deed of trust associated

with the first mortgage loan. Thus, the complaint named as defendants Petra Finance and

Clear Springs. However, neither the original lender nor the mortgage broker was named

as a defendant. According to Mr. James, the original lender and mortgage broker “are now

defunct.”

The trial court entered a restraining order prohibiting the foreclosure, and litigation

ensued over the next several years. Petra Finance and Clear Springs unsuccessfully moved

for summary judgment, but in 2023, they filed a renewed motion for summary judgment

on multiple grounds. Initially, the defendants noted that Mr. James had failed to respond

to their requests for admissions served upon counsel in 2017 and 2018, and therefore, the

matters contained therein should be deemed conclusively established.

1

Rule 10 of the Rules of the Court of Appeals of Tennessee provides:

This Court, with the concurrence of all judges participating in the case, may affirm, reverse

or modify the actions of the trial court by memorandum opinion when a formal opinion

would have no precedential value. When a case is decided by memorandum opinion it shall

be designated “MEMORANDUM OPINION”, shall not be published, and shall not be

cited or relied on for any reason in any unrelated case.

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As grounds for summary judgment, the defendants pointed out that Mr. James

sought rescission of the loan agreement but admitted that he did not have the ability to

immediately repay the amount of the loan he received, $136,650. Mr. James also admitted

that he could not restore the status quo if the note and deed of trust were rescinded. The

defendants noted that rescission of a contract is meant to restore the parties to their former

positions and argued that there is no ground for rescission under Tennessee law if the

parties cannot be returned to the status quo due to the passage of time or other reasons.

As an additional or alternative ground for summary judgment, the defendants argued

that neither of them was alleged to have made any representations to Mr. James, as he only

alleged misrepresentation by the mortgage broker. They argued that Mr. James had failed

to present any evidence to show that the mortgage broker was acting as an agent for the

original lender or as an agent of the defendants. To the contrary, the defendants argued

that the mortgage broker hired by Mr. James was acting as his own agent in the transaction.

Therefore, they claimed that any misrepresentation made by the mortgage broker was not

attributable to Petra Finance or Clear Springs. Based on these and other additional grounds,

the defendants argued that there were no genuine issues of material fact and that they were

entitled to summary judgment.

Mr. James filed a response to the summary judgment motion. At the outset, he

conceded that the trial court had already deemed five of the defendants’ requests for

admissions to be admitted, which included the following matters pertinent to the issues on

appeal:

Admit that you received $136,650.00 when you signed the Promissory Note.

Admit that you do not have the ability to immediately repay $136,650.00 to

Petra.

Admit that you do not have the ability to restore the status quo if the

Promissory Note and the First Deed of Trust were rescinded.

Still, Mr. James argued that the defendants were not entitled to summary judgment “even

with these matters deemed as admitted.” Even though Mr. James admittedly received

$136,650 when he signed the promissory note, he stated that there was no proof in the

record to show the amount Petra Finance paid to acquire the note and deed of trust to the

property. Mr. James suggested that if the court ordered rescission of the loan transaction,

then he should only be required to tender to Petra Finance the amount it paid to acquire the

loan, “which is yet to be determined.” He argued that, “ultimately, the Court will be

required to determine what would be required to restore Petra to the status quo.”

As for the agency issue, Mr. James argued that the mortgage broker had an agency

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relationship with the original lender. Specifically, Mr. James argued that the record

contained proof that the mortgage broker was acting as an agent for the lender because the

settlement statement showed that the lender paid the broker a yield spread premium, and

the mortgage broker testified during his deposition that he had contractual relationships

with the lenders, which set out the parameters under which he could originate loans. Mr.

James argued that the current defendants were assignees of the original lender and servicer

of the loan, and therefore, any rights they had to collect payments or foreclose would

emanate from the original documents and be subject to the same defenses. Thus, Mr. James

asserted that the defendants were “subject to” his claim for fraud in the inducement of the

original loan, and their rights “would depend on the ultimate resolution of [his] claim for

rescission.”

In 2024, the trial court entered a final order granting summary judgment to Petra

Finance and Clear Springs on the claim for rescission based on fraudulent inducement.

First, the trial court found that Mr. James was asking for rescission of the note in this action,

but he admitted that he did not have the ability to immediately repay $136,650 to Petra and

that he “could not restore the status quo” if the note and deed of trust were rescinded. The

trial court concluded that there is no ground for rescission under Tennessee law if the

parties cannot be returned to the status quo. Because Mr. James admittedly did not have

the ability to place the parties in their prior status, the court found he was not entitled to

rescission.

Next, the trial court found that Mr. James failed to identify a single representation

made to him by the original lender, and the only actor who allegedly made

misrepresentations to him was the mortgage broker. The trial court found that Mr. James

failed to present “any evidence or legal theory” showing that the mortgage broker was

acting as an agent for the lender. Accordingly, the court found that any misrepresentation

by the mortgage broker was not attributable to Petra Finance or Clear Springs. For these

reasons, the trial court granted the defendants’ motion for summary judgment. Mr. James

timely filed a notice of appeal.

II. ISSUES PRESENTED

Mr. James presents the following issues for review on appeal:

1. Whether the trial court erred in denying the Plaintiff’s claim for rescission

of a mortgage loan agreement for fraud in the inducement of the agreement

based upon the plaintiff’s mortgage broker’s acceptance of compensation

from the lender to induce him to accept loan terms less favorable than terms

for which he was qualified.

2. Whether the trial court erred in finding that rescission was not an

appropriate remedy because the plaintiff could not repay the original loan

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amount as restitution prior to a finding of liability or determination of the

proper amount necessary to make restitution.

For the following reasons, the decision of the chancery court is hereby affirmed.

III. DISCUSSION

Summary judgment is appropriate “if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, show that there

is no genuine issue as to any material fact and that the moving party is entitled to a judgment

as a matter of law.” Tenn. R. Civ. P. 56.04. We review a trial court’s ruling on a motion

for summary judgment de novo with no presumption of correctness. Case v. Wilmington

Tr., N.A., 703 S.W.3d 274, 281 (Tenn. 2024).

We will address Mr. James’s last issue first, regarding rescission. A contract may

be rescinded for fraud. Case Handyman Serv. of Tenn., LLC v. Lee, No. M2011-00751-

COA-R3-CV, 2012 WL 2150857, at *7 (Tenn. Ct. App. June 13, 2012) (quoting Douglas

v. Foster, 2002 WL 83605, at *1 (Tenn. Ct. App. Jan. 22, 2002)). However, rescission “is

not looked upon lightly and will be awarded only under the most demanding

circumstances.” Id. (quoting Douglas, 2002 WL 83605, at *1). “[R]escission is not

favored in Tennessee[.]” Pugh’s Lawn Landscape Co. v. Jaycon Dev. Corp., 320 S.W.3d

252, 261 (Tenn. 2010) (citing Klosterman Dev. Corp. v. Outlaw Aircraft Sales, Inc., 102

S.W.3d 621, 631 (Tenn. Ct. App. 2002)). It “involves the avoidance, or setting aside, of a

transaction. Usually it involves a refund of the purchase price or otherwise placing the

parties in their prior status.” Mills v. Brown, 568 S.W.2d 100, 102 (Tenn. 1978).

Here, it is undisputed, based on the admissions of Mr. James in the trial court, that

he received $136,650 when he signed the promissory note, that he did not have the ability

to immediately repay $136,650 to Petra, and that he did not “have the ability to restore the

status quo if the Promissory Note and the First Deed of Trust were rescinded.” Because

Mr. James admittedly did not have the ability to place the parties in their prior status, the

trial court found that he was not entitled to rescission. We agree. “It is well settled in this

jurisdiction that a contract cannot be rescinded without restoring the ‘status quo.’” Loveday

v. Cate, 854 S.W.2d 877, 881 (Tenn. Ct. App. 1992); see Lindsey-Davis Co. v. Siskin, 358

S.W.2d 331, 333 (Tenn. 1962) (noting counsel’s admission that “it is a fundamental rule

in equity a contract will not be rescinded if the parties cannot be placed in status quo”);

Leake v. Gray, Shillinglaw & Co., 226 S.W.2d 298, 305 (Tenn. 1949) (“if the parties cannot

be put back in status quo or equity cannot be done due to the passage of time, etc., then

clearly there is no ground for a rescision”); Brady v. Oliver, 147 S.W. 1135, 1141 (Tenn.

1911) (“As a general proposition, neither party to a contract can rescind without restoring

the status quo.”); A. Landreth Co. v. Schevenel, 52 S.W. 148, 149 (Tenn. 1899) (“It is an

elemental principle, as applicable to rescission of contracts or settlements by fraud or

otherwise, that upon rescission the parties must be put in statu[s] quo[.]”).

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Simply put, “Tennessee law provides that rescission is not available if the parties

cannot be placed in status quo.” Klosterman, 102 S.W.3d at 635. The trial court correctly

noted that “[i]f the parties cannot be put in status quo, or if, due to the passage of time or

other reasons, equity cannot be done, there is no ground for rescission.” Lamons v.

Chamberlain, 909 S.W.2d 795, 801 (Tenn. Ct. App. 1993). For instance, in Cato v. Batts,

No. M2009-02204-COA-R3-CV, 2011 WL 579153, at *9 (Tenn. Ct. App. Feb. 17, 2011),

we observed that rescission was not an appropriate remedy where “[f]our years ha[d]

passed since the sale of the home when this case went to trial and it has not been established

that the parties could be returned to the status quo that existed when the Catos purchased

the property[.]” Thus, “rescission of a contract should be denied if the parties cannot be

placed as nearly as possible in the respective positions they were in prior to entering into

the contract.” Song v. Chung, No. E2018-00114-COA-R3-CV, 2018 WL 5618114, at *11

(Tenn. Ct. App. Oct. 30, 2018).

The issue raised by Mr. James on appeal is whether the trial court erred in

determining that rescission was not an appropriate remedy “prior to a finding of liability or

determination of the proper amount necessary to make restitution.” He first suggests that

the trial court should not have determined whether rescission was appropriate “at the

summary judgment stage without a full consideration of all the facts and circumstances of

the case.” Mr. James contends that rescission is a remedy “particularly unsuited for

resolution at summary judgment.” However, summary judgments “are proper in virtually

any civil case that can be resolved on legal issues alone.” Green v. Green, 293 S.W.3d

493, 513 (Tenn. 2009). In Green, our supreme court reviewed whether summary judgment

was properly granted on a claim for rescission of a contract under the Tennessee Securities

Act. Id. at 496-97. See also Hidden Lake Resorts Homeowners Ass’n, Inc. v. Moore, No.

M2022-01323-COA-R3-CV, 2024 WL 2844447, at *11 (Tenn. Ct. App. June 5, 2024)

(affirming summary judgment on a rescission claim); Gibbs v. Gilleland, No. M2015-

00911-COA-R3-CV, 2016 WL 792418, at *9-10 (Tenn. Ct. App. Feb. 29, 2016) (resolving

cross-motions for summary judgment on a claim for rescission). Mr. James suggests that

it is difficult “to pass judgment on the appropriateness of the remedy of rescission at the

summary judgment stage.” However, summary judgment was clearly appropriate here

based on the undisputed fact that Mr. James did not “have the ability to restore the status

quo if the Promissory Note and the First Deed of Trust were rescinded.”

Mr. James also contends that the trial court erred in finding that rescission was not

an appropriate remedy prior to determining “the proper amount necessary to make

restitution.” Mr. James admitted that he received $136,650 when he signed the promissory

note and that he did not have the ability to repay that amount to Petra. He speculates in his

brief, without any proof in the record, that Petra Finance may have purchased the loan for

a substantially less amount. Before the trial court, he similarly argued in response to the

summary judgment motion that “ultimately, the Court will be required to determine what

would be required to restore Petra to the status quo.” However, because of his admission

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that he did not “have the ability to restore the status quo if the Promissory Note and the

First Deed of Trust were rescinded,” it is not necessary to ascertain the amount paid by

Petra or the “proper amount necessary to make restitution.” “[A] contract will not be

rescinded if the parties cannot be placed in status quo.” Ingram v. Beazer Homes Corp.,

No. M2001-01641-COA-R3-CV, 2003 WL 1487251, at *6 (Tenn. Ct. App. Mar. 25, 2003)

(quotation omitted).

We also find no support for Mr. James’s suggestion that the trial court was required

to first address “liability” for fraud prior to deciding whether rescission was appropriate.

“While a plaintiff must prove the elements of one of the grounds justifying rescission in

order to be eligible for that remedy, such proof does not require the trial court to

automatically grant it.” Stonecipher v. Est. of Gray, No. M1998-00980-COA-R3-CV,

2001 WL 468673, at *4 (Tenn. Ct. App. May 4, 2001); see, e.g., Noble v. Pease, No.

W2004-00439-COA-R3-CV, 2005 WL 1707969, at *5 (Tenn. Ct. App. July 22, 2005)

(recognizing that a breach of contract did occur but explaining that “[r]egardless, however,

of the gravity of the wrong committed . . . if ‘the parties cannot be put in status quo, or if,

due to the passage of time or other reasons, equity cannot be done, there is no ground for

rescission,’” and “[i]n this case, due to the passage of time and the difficulty of unwinding

the transaction, it appears that rescission is not the appropriate remedy”) (quoting Lamons,

909 S.W.2d at 801). In any event, however, the trial court did address liability by finding

no fraud attributable to the defendants. All other issues raised by the appellant are

pretermitted.

IV. CONCLUSION

For the aforementioned reasons, the decision of the chancery court is hereby

affirmed and remanded. Costs of this appeal are taxed to the appellant, William Z. James,

for which execution may issue if necessary.

s/ Carma Dennis McGee

CARMA DENNIS MCGEE, JUDGE

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