Cadence Bank, NA v. The Alpha Trust - Dissent

IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

November 12, 2014 Session

CADENCE BANK, NA v. THE ALPHA TRUST, ET AL.

Appeal from the Chancery Court for Shelby County

No. CH1206543 Kenny W. Armstrong, Chancellor

No. W2014-01151-COA-R3-CV - Filed February 25, 2015

J. STEVEN STAFFORD, P.J., W.S., dissenting in part.

I agree with the result reached by the majority Opinion with regard to whether

Cadence was properly authorized to bring this suit. I also concur in the majority’s conclusion

that the Appellants cannot survive summary judgment on their claims arising from the

parties’ written contract. I must respectfully dissent, however, from the majority’s holding

that summary judgment was proper with regard to Appellants’ breach of contract and

promissory estoppel claims concerning the alleged oral contract. My disagreement with the

majority’s Opinion is two-fold. First, a genuine dispute of fact exists over whether the parties

entered into a binding oral contract. Byrd v. Hall, 847 S.W.2d 208, 211 (Tenn. 1993).

Second, contrary to the majority’s conclusion that no contract existed between the parties

based on the omission of material terms, Tennessee law will uphold a contract’s formation

even though one party has discretion to choose between material terms. Gurley v. King, 183

S.W.3d 30, 41 (Tenn. 2005). Accordingly, I would reverse the trial court’s grant of summary

judgment in favor of Cadence Bank on Appellants’ claims under the alleged oral contract.

Because this is an issue concerning an oral contract, I begin with the general rules

concerning contracts of this nature. As recently explained by this Court:

A contract can be expressed, implied, written, or oral.

Peoples Bank of Elk Valley v. ConAgra Poultry Co., 832

S.W.2d 550, 553 (Tenn. Ct. App. 1991) (quoting Jamestowne

on Signal, Inc. v. First Fed. Sav. & Loan Ass’n, 807 S.W.2d

559, 564 (Tenn. Ct. App. 1990)). “While oral contracts are

enforceable, persons seeking to enforce them must demonstrate

(1) that the parties mutually assented to the terms of the contract

and (2) that these terms are sufficiently definite to be

enforceable.” Burton v. Warren Farmers Co-op., 129 S.W.3d

513, 521 (Tenn. Ct. App. 2002) (citing Davidson v. Holtzman,

47 S.W.3d 445, 453 (Tenn. Ct. App. 2000); Castelli v. Lien, 910

S.W.2d 420, 426–27 (Tenn. Ct. App. 1995)[)]. The

contemplated mutual assent need not be manifested in writing;

it may be manifested, in whole or in part, by the parties’ spoken

words or by their actions or inactions. Id. However, the

contemplated mutual assent “should not . . . be inferred from the

unilateral acts of one party or by an ambiguous course of dealing

between the parties from which different inferences regarding

the terms of the contract may be drawn” and it “may not rest

solely on the uncommunicated intentions or states of mind of the

contracting parties.” Id.

“Indefiniteness as to any essential element of an

agreement may prevent the creation of an enforceable contract.”

Peoples Bank of Elk Valley, 832 S.W.2d at 553 (citing

Jamestowne, 807 S.W.2d at 564[)]. Therefore, a contract must

be sufficiently explicit so a court can perceive the respective

obligations of the parties. Doe v. HCA Health Servs. of

Tennessee, Inc., 46 S.W.3d 191, 196 (Tenn. 2001). “The terms

of a contract are reasonably certain if they provide a basis for

determining the existence of a breach and for giving an

appropriate remedy.” Jamestowne, 807 S.W.2d at 564 (quoting

Restatement (Second) of Contracts § 33(2) (1981)). Moreover,

the “[d]estruction of contracts because of uncertainty has never

been favored by the law, and with the passage of time, such

disfavor has only intensified.[”] Gurley v. King, 183 S.W.3d 30,

34 (Tenn. Ct. App. 2005).

Bridgeforth v. Jones, No. M2013-01500-COA-R3-CV, 2015 WL 336376, at *10–*11 (Tenn.

Ct. App. Jan. 26, 2015). “Precedent requires us to use an objective test to determine mutual

assent, rather than the outdated ‘meeting of the minds’ theory.” Cummins v. Opryland

Prods., No. M1998-00934-COA-R3-CV, 2001 WL 219696 (Tenn. Ct. App. 2001) (citing

Higgins v. Oil, Chem., & Atomic Workers Int’l Union, 811 S.W.2d 875, 879 (Tenn. 1991)

(using an objective test to find no contract had been formed between the parties based on

ongoing negotiations and the testimony of one party that he expected changes after the oral

promise had been made)). Further, this Court has previously explained that when considering

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the question of:

. . . whether or not [something] should be construed as a

binding contract, we must keep in mind that

‘[t]he primary test as to the actual character of a

contract is the intention of the parties, to be

gathered from the whole scope and effect of the

language used, and mere verbal formulas, if

inconsistent with the real intention are to be

disregarded. . . . But the existence of a contract,

the meeting of the minds, the intention to assume

an obligation, and the understanding are to be

determined in case of doubt not alone from the

words used, but also the situation, acts, and the

conduct of the parties, and the attendant

circumstances.’

Gurley, 183 S.W.3d 30, 43 (Tenn. Ct. App. 2005) (citing 17 Am.Jur.2d Contracts § 1

(1964)).

As I perceive it, the majority Opinion concludes that the alleged oral contract in this

case fails on both elements—evidence of mutual assent and sufficiently definite terms. I

respectfully disagree as to both elements, as I conclude that drawing all reasonable inferences

in the Appellants’ favor, material factual disputes exist as to each element. See Martin v.

Norfolk So. Ry. Co., 271 S.W.3d 76, 88 (Tenn. 2008) (Koch, J., concurring) (citing Brown

v. Birman Managed Care, Inc., 42 S.W.3d 62, 66 (Tenn. 2001); Mason v. Seaton, 942

S.W.2d 470, 473 (Tenn. 1997)) (stating that summary judgment is improper when “there is

any dispute regarding the reasonable inferences that can be drawn from the undisputed

facts”); see also Stovall v. Clarke, 113 S.W.3d 715, 721 (Tenn. 2003) (requiring courts

analyzing summary judgment issues to draw all reasonable inferences in the non-moving

party’s favor); Layhew v. Dixon, 527 S.W.2d 739, 742 (Tenn. 1975) (opining that summary

judgment was inappropriate because of factual disputes even though the issue to be decided

was an issue of law). Accordingly, summary judgment was inappropriate.

First, the facts of this case raise a legitimate question of fact concerning whether a

contract was created by the mutual assent of the parties. According to this Court, when there

is a dispute, at the summary judgment stage, as to whether the parties entered into an oral

contract, the determinative question is “whether or not reasonable minds could differ” as to

whether a binding contract had been created. Bridgeforth, 2015 WL 336376, at *17.

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Accordingly, we look to the evidence to determine whether factual disputes would cause

reasonable minds to differ on this question.

Here, the evidence central to this dispute is a statement made by Mr. Uthe in a sworn

affidavit. Specifically, Mr. Uthe states:

Leonard McKinnon . . . made misleading statements to [David

B. Uthe] by telling [him] that it was okay for the Defendants

to renew the loan with no questions asked provided that said

Defendants provide him with tax returns for the year of 2010,

wherein there was neither any follow up by said Mr. McKinnon

nor was the loan renewal and/or refinance being processed . . .

(Emphasis added). Accordingly, the record contains specific, unambiguous evidence from

Mr. Uthe that a contract was created after Mr. McKinnon made an unambiguous oral promise

to refinance the loan “no questions asked” other than a requirement to provide tax returns.

Importantly, the promise alleged above contains no requirement that Appellants obtain a new

assessment of the property, despite the fact that Cadence later insisted on this requirement.

Cadence admits that the parties entered into some oral negotiations; in fact, from my review

of the record, Cadence never expressly denies that Mr. McKinnon made this statement.

Instead, Cadence merely denies that this statement is evidence that a binding contract was

created between the parties. Under these circumstances, I cannot conclude that the record

contains no evidence that the parties’ mutual assent to a contract to refinance the loan was

“manifested, in whole or in part, by the parties’ spoken words.” Bridgeforth, 2015 WL

336376, at *11 (quoting Burton, 129 S.W.3d at 521). In addition, the parties’ course of

dealing1 and prior agreements demonstrate that renewal of this particular loan had occurred

several times prior with minimal effort from Appellants and with minimal resistance from

Cadence Bank, supporting Appellants’ position that a binding contract had been created.

Thus, the parties’ course of dealing was not “ambiguous” and may be considered in

determining whether an oral contract was entered into in this case. Bridgeforth, 2015 WL

336376, at *11 (quoting Burton, 129 S.W.3d at 521). Considering these facts, reasonable

minds could differ as to whether the parties’ oral negotiations resulted in a binding contract

to permit Appellants to refinance the loan with “no questions asked.” See Bridgeforth, 2015

WL 336376, at *17 (concluding that with regard to a “preliminary” oral contract, genuine

issues of fact prevented summary judgment because reasonable minds could differ as to, inter

alia, the import of the parties oral representations); Gurley, 183 S.W.3d at 43 (concluding

1

The record indicates that the parties’ 2001 Promissory Note was refinanced as memorialized in

the parties’ 2006 Modification Agreement. Several years later, the principal balance and number of payments

to be made were altered again via the 2011 Change in Terms Agreement.

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that with regard to a “preliminary” oral contract, summary judgment was inappropriate

because reasonable minds could differ as to whether a contract had been created). Although

the majority Opinion correctly points out that contract formation is an issue of law, see

German v. Ford, 300 S.W.3d 692, 701 (Tenn. Ct. App. 2009), the facts concerning whether

we can decide this issue are in dispute. As such, “a trial is necessary . . .” Byrd, 847 S.W.2d

at 216, 210 (opining that “the [summary judgment] procedure is clearly not designed to serve

as a substitute for the trial of genuine and material factual matters”).

I also disagree with the majority’s conclusion that the omission of essential terms is

fatal in this case. The majority opines: “Appellants also offer no evidence to suggest any

certainty in the term of the loan renewal or the principal amount to be financed.” The

majority states that the principal balance, interest rates, and payment amounts were unknown

terms precluding the finding of an enforceable contract. As previously, discussed, in order

to enforce a valid oral contract, a party must show that the terms of the contract are

sufficiently definite. Bridgeforth, 2015 WL 336376, at *10.

I do not agree that the terms in this case are fatally uncertain. Mr. Uthe’s above

statement indicates that the parties agreed to refinance the loan “no questions asked” so long

as some minor conditions were fulfilled. Merely because a contract contains a condition

precedent to performance does not indicate that no binding contract is created. Instead, the

failure to perform a condition precedent is interpreted as a breach of the contract. See

generally Covington v. Robinson, 723 S.W.2d 643, 645 (Tenn.Ct.App.1986) (citing

Strickland v. City of Lawrenceburg, 611 S.W.2d 832 (Tenn.Ct.App.1981)). When properly

read in the light most favorable to Appellants, Mr. Uthe’s above statement indicates that Mr.

McKinnon offered to renew the loan without any further negotiation, at the current interest

rate, with the current principal balance, with the same payment amounts. While we may

doubt that Cadence would enter into such an agreement on terms so favorable to the

Appellants, to grant summary judgment on this issue would be to improperly weigh the

evidence. See Byrd v. Hall, 847 S.W.2d 208, 211 (Tenn. 1993) (“The court is not to ‘weigh’

the evidence when evaluating a motion for summary judgment.”) (citing Hamrick v. Spring

City Motor Co., 708 S.W.2d 383, 389 (Tenn. 1986)). Here, Mr. Uthe’s statement that

Cadence promised to renew the loan “no questions asked,” taken in the light most favorable

to it, demonstrates that the parties had reached an agreement and that agreement provided

that the parties would refinance the loan on the same terms as had been utilized in their prior

agreement. Under these circumstances, I would conclude that Mr. Uthe has alleged a contract

with sufficiently definite terms to survive summary judgment.

However, the formation of a contract is not precluded even if one does not assume that

“no questions asked” means that the current terms shall continue into the renewal of the loan.

Tennessee Courts have previously found binding contracts where some terms were uncertain

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at the time of contract formation. See Gurley v. King, 183 S.W.3d 30, 41 (Tenn. 2005) (“The

fact that the parties to a purported contract omitted certain provisions that are commonly

included may indicate an intention to be bound without them and the gaps may be provided

for in the decree.”). Further, a contract may be sufficiently certain even if its leaves material

terms up to the discretion of one party. Id. (citing Lo Bosco v. Kure Eng’g Ltd., 891 F. Supp

1020, 1026 (D.N.J. 1995)). As this Court has very recently opined:

Although the existence of open terms generally suggests that

binding agreement has not been reached, that is not necessarily

so. For the parties can bind themselves to a concededly

incomplete agreement in the sense that they accept a mutual

commitment to negotiate together in good faith in an effort to

reach final agreement within the scope that has been settled in

the preliminary agreement.

Bridgeforth, 2015 WL 336376, at *16 (quoting Gurley, 183 S.W.3d at 40–41) (quoting

Teachers Ins. & Annuity Assoc. of Am. v. Tribune Co., 670 F.Supp. 491, 498 (S.D.N.Y.

1987)). Even assuming, arguendo, that the parties’ agreement omits essential terms, Mr.

Uthe’s statement explaining that the loan would be renewed “no questions asked” should be

interpreted in favor of the Appellants to mean that the “parties had committed themselves to

some of the major terms, [even if] other essential elements remain to be negotiated.”

Bridgeforth, 2015 WL 336376, at *16. Thus, at the very least, Mr. Uthe’s affidavit indicates

that the parties committed themselves “to negotiate the open issues in good faith in an

attempt to reach the alternate objective within the agreed framework.” Bridgeforth, 2015 WL

336376, at *16 (quoting Gurley, 183 S.W.3d at 40–41) (quoting Teachers, 670 F.Supp. at

498). Tennessee law recognizes this as a valid and enforceable contract from which a breach

of contract action may lie.

In addition, I disagree with the majority’s characterization of the alleged oral promise

by Mr. McKinnon as too vague to form the basis as a claim for promissory estoppel. Similar

to my foregoing analysis pertaining to contract formation, I believe that Appellants met their

burden on summary judgment by producing evidence demonstrating that a material dispute

of fact existed regarding the interpretation of Mr. McKinnon’s oral promise to renew the

Appellants’ loan.

_________________________________

J. STEVEN STAFFORD, JUDGE

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