P. Michael Huddleston v. Kenneth L. Harper

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

January 15, 2015 Session

P. MICHAEL HUDDLESTON v. KENNETH L. HARPER ET AL.

Appeal from the Circuit Court for Blount County

No. L-18329 David R. Duggan, Judge

No. E2014-01174-COA-R3-CV-FILED-JUNE 30, 2015

P. Michael Huddleston (Plaintiff) brought this action against his former business partner,

Kenneth L. Harper, and also against Jerry L. Hurst, the person to whom Plaintiff sold his

one-half interest in the partnership. Plaintiff alleged that the primary asset of the

partnership is a large building in Maryville, and that Defendants fraudulently concealed

the fact that partnership had filed an insurance claim for damage to the building‟s roof.

The insurance claim was an asset that turned out to be worth over one million dollars.

The insurance company paid this amount to the partnership shortly after Plaintiff sold his

interest. Plaintiff claimed that Defendants fraudulently represented that the value of the

building was about a million dollars less than its actual value because of the damage to

the roof. As a consequence, Plaintiff alleged that he was fraudulently induced to sell his

one-half interest for substantially less than its actual value. Plaintiff also alleged that

partner Harper fraudulently endorsed Plaintiff‟s name to a check from the insurance

company without his permission, and that the Defendants committed promissory fraud by

inducing Plaintiff to endorse a second insurance check with the promise “to make things

right with” him. The trial court granted summary judgment to Defendants, finding that

they “negated essential elements of the plaintiff‟s claims with respect to whether there

was a failure to disclose or whether there [were] misrepresentations with respect to what

was disclosed.” Finding genuine issues of material fact in dispute, we vacate the trial

court‟s grant of summary judgment.

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

Vacated; Case Remanded

CHARLES D. SUSANO, JR., C.J., delivered the opinion of the court, in which D. MICHAEL

SWINEY and THOMAS R. FRIERSON, II, JJ., joined.

James S. MacDonald, Knoxville, Tennessee, for the appellant, P. Michael Huddleston.

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Lewis S. Howard, Jr., Knoxville, Tennessee, for the appellees, Kenneth L. Harper and

Jerry L. Hurst.

OPINION

I.

On October 1, 2003, Plaintiff and Harper formed a general partnership known as

Harper-Huddleston Properties, or HH Properties. As contemplated by the partnership

agreement, they acquired about ten acres of land, improved with a building of

approximately 168,000 square feet (the HH building). According to Plaintiff, in 2008,

Harper “assumed managing partner responsibilities for the HH Partnership.” In June of

2011, the partners began discussing the possibility of Plaintiff selling his one-half interest

to Hurst.

The value of the HH building had been appraised at between $3,300,000 and

$3,600,000. Harper insisted that its actual value was significantly less because the roof

had suffered significant hail damage and needed to be replaced at a cost of about one

million dollars. In fact, without Plaintiff‟s knowledge, the partnership, through Harper,

had submitted a claim with its insurance company for the damage to the roof. Defendants

did not divulge this information to Plaintiff during the negotiations pertaining to the sale

price of Plaintiff‟s interest. In an agreement executed on October 31, 2011, Plaintiff sold

his one-half interest to Hurst for $1,250,000, which, according to Plaintiff, represented

one-half of the estimated $2,500,000 value of the roof-damaged building. The

assignment and sale agreement contained a “full release” provision stating, “Seller [i.e.,

Plaintiff] hereby releases the Partnership and all partners . . . from all actions, claims,

liabilities, obligations, litigation and other matters relating to or arising from the

operation of the Partnership or the business of the Partnership.” On November 10, 2011,

the parties executed an “addendum to assignment and sale of partnership interest in

Harper-Huddleston properties” that, in essence, gave Hurst more time to pay Plaintiff the

remaining balance owed on the sale. The insurance claim was approved shortly after the

sale of Plaintiff‟s interest, resulting in two payments to the partnership totaling

$1,068,761.65.

The day after Plaintiff signed the addendum, Harper contacted him and asked

whether he, Harper, could sign Plaintiff‟s name to an insurance check that named

Plaintiff as one of the payees. Plaintiff told Harper, “Yea, I guess I‟m okay with that

unless you‟re talking thousands and thousands of dollars.” The check, dated November

8, 2011, was in the amount of $566,662.38. Shortly thereafter, at Plaintiff‟s insistence,

Harper told him the amount of the check. On December 2, 2011, Plaintiff learned that

Harper had endorsed Plaintiff‟s name to the check.

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A second insurance check in the amount of $502,999.27 followed, also with

Plaintiff‟s name listed as a payee. According to Plaintiff, Defendants “beseeched” him to

endorse the second check, promising “to make things right with” Plaintiff regarding the

two insurance payments. Plaintiff agreed and endorsed the second check. He filed this

action shortly after realizing that Defendants had no plans “to make things right.”

Defendants filed a motion for summary judgment. Following a hearing, the trial

court granted the motion, stating in pertinent part as follows:

There was an assignment and sale agreement. It‟s not been

rescinded. The plaintiff is not seeking to rescind it. It‟s been

ratified and affirmed. The plaintiff and his wife have been

released from business debt liability. His name was included

on two checks which he endorsed or allowed someone to

endorse, and even if, even if, and I‟m not finding, but even if

there were misrepresentations with respect to the first check

as to the amount of the check, it couldn‟t ‒ all he had to do

was say show me the check instead of just saying, well, as

long as we‟re talking a few thousand dollars. How is that a

reasonable reliance on anything? He could have said show

me the check; what‟s the amount of the check? If he chose to

say fine, sign my name to a check, without further inquiry, he

was perhaps careless. Where is there a reasonable reliance on

anything that the defendant said? But they‟ve established that

his name was on two checks which he either endorsed from

the insurance proceeds that he‟s complaining about . . . His

name was on two insurance company checks which he either

endorsed or allowed to be endorsed. If he didn‟t know all the

details on the first check, the Court finds that he knew about

the details by the time of the second check. He agreed on

January 24, 2012 to endorse the insurance check upon Hurst‟s

final payment. The payment was made. He did so endorse.

All of the insurance proceeds have been paid to the roofing

contractor.

The Court finds that based upon all of those facts being

established and that there being no genuine issue of material

fact with respect to those facts, and also the finding that there

are many things that the plaintiff could have done to protect

himself if in fact he thought he was being defrauded,

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including seeking to rescind the agreement, including. . .

asking for monies to be paid into the court.

The Court believes that the defendants have negated essential

elements of the plaintiff‟s claims with respect to whether

there was a failure to disclose or whether there were

misrepresentations with respect to what was disclosed. The

Court believes that the defendants have negated essential

elements of the plaintiff‟s claim for a fraudulent inducement

by a conspiracy of silence, that there is no genuine issue of

material fact, and I‟m going to grant summary judgment to

the defendants.

Plaintiff timely filed a notice of appeal.

II.

Plaintiff raises the issue of whether the trial court correctly granted summary

judgment to Defendants. Defendants argue that Plaintiff‟s appeal should be deemed

frivolous.

III.

Because the complaint was filed after July 1, 2011, Tenn. Code Ann. § 20-16-101

(Supp. 2014) applies to our analysis of summary judgment in this case. That statute

provides:

In motions for summary judgment in any civil action in

Tennessee, the moving party who does not bear the burden of

proof at trial shall prevail on its motion for summary

judgment if it:

(1) Submits affirmative evidence that negates an essential

element of the nonmoving party‟s claim; or

(2) Demonstrates to the court that the nonmoving party‟s

evidence is insufficient to establish an essential element of the

nonmoving party‟s claim.

See also Harris v. Metro. Dev. & Housing Agency, No. M2013-01771-COA-R3-CV,

2014 WL 1713329 at *3 (Tenn. Ct. App. M.S., filed Apr. 28, 2014); Wells Fargo Bank,

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N.A. v. Lockett, No. E2013-02186-COA-R3-CV, 2014 WL 1673745 at *2 (Tenn. Ct.

App. E.S., filed Apr. 24, 2014). As we observed in Harris:

Summary judgment shall be granted “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.

Summary judgments do not enjoy a presumption of

correctness on appeal. BellSouth Adver. & Publ’g Co. v.

Johnson, 100 S.W.3d 202, 205 (Tenn. 2003). The resolution

of a motion for summary judgment is a matter of law, thus,

we review the trial court‟s judgment de novo with no

presumption of correctness. Martin v. Norfolk Southern Ry.

Co., 271 S.W.3d 76, 84 (Tenn. 2008). The appellate court

makes a fresh determination that the requirements of Tenn. R.

Civ. P. 56 have been satisfied. Hunter v. Brown, 955 S

.W.2d 49, 50-51 (Tenn. 1977).

2014 WL 1713329 at *4. In making this determination,

[w]e must view all of the evidence in the light most favorable

to the nonmoving party and resolve all factual inferences in

the nonmoving party‟s favor. Martin v. Norfolk S. Ry. Co.,

271 S.W.3d 76, 84 (Tenn. 2008); Luther v. Compton, 5

S.W.3d 635, 639 (Tenn. 1999); Muhlheim v. Knox Cnty. Bd

of Educ., 2 S.W.3d 927, 929 (Tenn. 1999). If the undisputed

facts support only one conclusion, then the court‟s summary

judgment will be upheld because the moving party was

entitled to judgment as a matter of law. See White v.

Lawrence, 975 S.W.2d 525, 529 (Tenn. 1998); McCall v.

Wilder, 913 S.W.2d 150, 153 (Tenn. 1995).

Wells Fargo Bank, 2014 WL 1673745 at *2.

IV.

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The essence of Plaintiff‟s complaint states an action for fraud, now appropriately

called intentional misrepresentation. In Hodge v. Craig, 382 S.W.3d 325, 342-43 (Tenn.

2012), the Supreme Court recently provided the following guidance:

The law has never undertaken to precisely define fraud. The

courts have long recognized that “fraud assumes many

shapes, disguises and subterfuges,” and that any effort to

define fraudulent conduct would be futile.

The ancient common-law action for deceit provided the

vehicle for persons to seek recovery from those who intend to

deceive others for their own benefit. The basis for finding

legal responsibility for deceit centered on the defendant‟s

intent to deceive, mislead, or convey a false impression.

Throughout the centuries, the courts have had little difficulty

finding the required intent to deceive when the evidence

shows either that the defendant knows the statement is false

or that the defendant made the statement “without any belief

as to its truth, or with reckless disregard whether it be true or

false.” When a victim of deceit sought restitution, the courts

customarily considered the inequity of allowing the defendant

to retain what he or she obtained from the plaintiff. However,

in cases in which the deceit involved the transfer of something

of value, the courts permitted the plaintiff to recover direct

damages, along with special and consequential damages.

Our current common-law claim for intentional

misrepresentation is the successor to the common-law action

for deceit. First Nat’l Bank of Louisville v. Brooks Farms,

821 S.W.2d 925, 927 (Tenn. 1991). In fact, “intentional

misrepresentation,” “fraudulent misrepresentation,” and

“fraud” are different names for the same cause of action. In

this opinion, we will refer to the cause of action as a claim for

intentional misrepresentation, and, in order to avoid

confusion, we suggest that this term should be used

exclusively henceforth.

To recover for intentional misrepresentation, a plaintiff must

prove: (1) that the defendant made a representation of a

present or past fact; (2) that the representation was false when

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it was made; (3) that the representation involved a material

fact; (4) that the defendant either knew that the representation

was false or did not believe it to be true or that the defendant

made the representation recklessly without knowing whether

it was true or false; (5) that the plaintiff did not know that the

representation was false when made and was justified in

relying on the truth of the representation; and (6) that the

plaintiff sustained damages as a result of the representation.

(Internal citations omitted; emphasis added)

We have also recognized that “fraud can be an intentional misrepresentation of a

known, material fact or it can be the concealment or nondisclosure of a known fact when

there is a duty to disclose.” Justice v. Anderson Cnty., 955 S.W.2d 613, 616 (Tenn. Ct.

App. 1997). As a general principle, “[n]ondisclosure of a material fact may also give rise

to a claim for fraudulent or negligent misrepresentation when the defendant has a duty to

disclose and the matters not disclosed are material.” Id., citing Dobbs v. Guenther, 846

S.W.2d 270, 274 (Tenn. Ct. App. 1992). In Macon Cnty. Livestock Mkt., Inc. v.

Kentucky State Bank, Inc., 724 S.W.2d 343, 349 (Tenn. Ct. App. 1986), this Court

observed:

As a general rule, a party may be held liable for damages

caused by his failure to disclose material facts to the same

extent that a party may be liable for damages caused by

fraudulent or negligent misrepresentations. W. Keeton,

Prosser and Keeton on The Law of Torts § 106 (5th ed.1984);

37 Am.Jur.2d Fraud and Deceit § 146 (1968); and 37 C.J.S.

Fraud § 16a. (1943). Thus, Restatement (Second) of Torts §

551(1)(1976) provides:

One who fails to disclose to another a fact that

he knows may justifiably induce the other to act

or refrain from acting in a business transaction

is subject to the same liability to the other as

though he had represented the nonexistence of

the matter that he has failed to disclose, if, but

only if, he is under a duty to the other to

exercise reasonable care to disclose the matter

in question.

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Our courts have pointed out consistently that liability for

nondisclosure can arise only in the cases where the person

being held responsible had a duty to disclose the facts at

issue. The Tennessee Supreme Court has held:

In all cases, concealment or failure to disclose,

becomes fraudulent only when it is the duty of a

party having knowledge of the facts to discover

them to the other party: 2 Pom. Eq., sec. 902.

And this author, in the same section says: “All

the instances in which the duty to disclose

exists and in which a concealment is therefore

fraudulent, may be reduced to three distinct

classes:

1. Where there is a previous definite fiduciary

relation between the parties.

2. Where it appears one or each of the parties to

the contract expressly reposes a trust and

confidence in the other.

3. Where the contract or transaction is

intrinsically fiduciary and calls for perfect good

faith. The contract of insurance is an example of

this last class.” Domestic Sewing Machine Co.

v. Jackson, 83 Tenn. 418, 424–25 (1885).

In this case, Plaintiff alleges in his complaint that “Harper violated the fiduciary

duties of loyalty and care owed by one partner to another set out at T.C.A. § 61-1-404

(2013) and that Harper further violated his duties of good faith and fair dealing as to the

Plaintiff.” Tennessee adopted the Revised Uniform Partnership Act, Tenn. Code Ann. §

61-1-101 et seq., in 2002. It provides in pertinent part as follows:

(a) The only fiduciary duties a partner owes to the partnership

and the other partners are the duty of loyalty and the duty of

care set forth in subsections (b) and (c).

(b) A partner‟s duty of loyalty to the partnership and the other

partners is limited to the following:

(1) To account to the partnership and hold as trustee for it any

property, profit, or benefit derived by the partner in the

conduct and winding up of the partnership business or derived

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from a use by the partner of partnership property, including

the appropriation of a partnership opportunity;

(2) To refrain from dealing with the partnership in the

conduct or winding up of the partnership business as or on

behalf of a party having an interest adverse to the partnership;

and

(3) To refrain from competing with the partnership in the

conduct of the partnership business before the dissolution of

the partnership.

(c) A partner‟s duty of care to the partnership and the other

partners in the conduct and winding up of the partnership

business is limited to refraining from engaging in grossly

negligent or reckless conduct, intentional misconduct, or a

knowing violation of law.

(d) A partner shall discharge the duties to the partnership and

the other partners under this act or under the partnership

agreement and exercise any rights consistently with the

obligation of good faith and fair dealing.

Tenn. Code Ann. § 61-1-404. Tennessee courts have long recognized that “partners owe

each other a fiduciary duty in all matters pertaining to the partnership.” Cude v. Couch,

588 S.W.2d 554, 555 (Tenn. 1979); American Ctr.-Nashville Ltd. v. Smith, No. 01A01-

9110-CH-00397, 1992 WL 361352 at *7 (Tenn. Ct. App. M.S., filed Dec. 9, 1992).

Applying these authorities to the facts of this case, it is clear that Harper may be held

liable to Plaintiff for concealment or nondisclosure of a material fact.

The factual framework for Plaintiff‟s claim is set forth at some length in his

affidavit, which states in pertinent part as follows:

By Partnership Agreement dated as of October 1, 2003 the

Plaintiff and the Defendant Kenneth L. Harper formed a

Tennessee general partnership known as Harper-Huddleston

Properties, sometimes also known as HH Properties. As

contemplated in the Partnership Agreement, said partnership

acquired the improved realty commonly known as 1713

Henry G. Lane, Maryville, TN consisting of approximately

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ten acres and approximately 168,000 square feet of space

under roof.

* * *

In 2008 . . . Defendant Harper assumed managing partner

responsibilities for the HH Partnership.

* * *

In early June 2011, . . . preliminary discussions began

between the Plaintiff and Harper with respect to Harper

acquiring the Plaintiff‟s interest in the HH partnership. These

discussions ultimately led to discussions by Harper

concerning the Defendant Jerry Hurst acquiring Plaintiff‟s

interest in the HH partnership rather than Harper. From the

outset, however, and whether on behalf of himself or Hurst,

the Defendant Harper emphasized to Plaintiff that the

approximately $1,000,000 cost needed to replace the roof on

the HH building substantially reduced the value of the HH

building, and hence the one-half value of the partnership that

was to be purchased from Plaintiff.

Despite the fact that the HH partnership had appraisals

estimating the value of the property between $3,300,000 and

$3,600,000, due largely to Harper’s insistence to Plaintiff

that the needed $1,000,000 roof repair to the HH building

substantially reduced its value, Plaintiff ultimately agreed to

sell his one-half interest in the HH partnership, the only

significant asset of which was the HH building and acreage,

to the Defendant Hurst for $1,250,00 (one-half of an

estimated value of $2,500,000 for the HH building).

Plaintiff, however, remained a full partner, owning a 50%

interest in the HH partnership until October 31, 2011, and . . .

at no time prior to October 31, 2011 was Plaintiff made aware

that the Defendants had filed an insurance claim for hail

damage to the HH building roof that resulted in payments

totaling $1,069,661.651 shortly after Plaintiff sold his interest

1

Throughout his affidavit, Plaintiff states that the total amount of the insurance payments for the

roof claim was $1,069,661.65. His complaint alleges that the total amount was $1,068,761.65, an amount

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in the HH partnership to the Defendant Hurst. The

Defendants were aware of the pending insurance claim for

approximately two months prior to Plaintiff selling his

interest to the Defendant Hurst, and yet nothing whatever was

disclosed to Plaintiff concerning the insurance claim until

after the first insurance check in the amount of $566,662.38

came in. . . . When Plaintiff finally heard of this very

substantial and material positive change in the financial

condition of the partnership, Plaintiff communicated to

Harper [his] sense that he “had been used,” to which Harper

replied, for obvious reasons, “I was afraid you would feel that

way....”2 The Defendant Harper also admitted in an email

dated January 3, 2012 to Plaintiff “ . . . . I understand how

you could feel betrayed as a partner . . . .”3

Plaintiff states that the continuing representations of the

Defendants Harper and Hurst that the HH building was worth

approximately $1,000,000 less than the appraised value due

to the need for $1,000,000 worth of roof repairs were

substantial, material and significant fraudulent inducements to

him to accept approximately $535,000 less for his fifty

percent, one-half interest in the Partnership.

* * *

On November 11, 2011, the very day after the ADDENDUM

[to the assignment and sale of partnership interest agreement]

was signed on November 10, 2011, Plaintiff received an e-

mail from the Defendant Ken Harper advising Plaintiff for the

first time that Harper and Hurst had submitted an insurance

claim for “some siding and roof repairs” and “just wanted to

see if you [Plaintiff] are ok if I sign your name on any

insurance checks that come in.” Plaintiff promptly replied to

Ken Harper on Friday, November 11, 2011 stating in part

“Yea, I guess I‟m okay with that unless you‟re talking

thousands and thousands of dollars.” More e-mails went back

admitted by Defendants‟ answer. This $900 discrepancy is not material to our analysis.

2

Defendants allege that the full statement made by Harper was, “I was afraid you would feel that

way, but in no way was this connived.”

3

Defendants argue in their brief that this quote from Harper‟s email omits “the remainder of such

communication wherein Harper conveyed that no actual betrayal had occurred.”

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and forth between Plaintiff and Harper on Monday,

November 14, 2011 and Tuesday, November 15, 2011

concerning the insurance check, culminating in Harper

providing to Plaintiff a copy of the $566,662.38 insurance

payment check as Plaintiff requested, upon receipt of which

Plaintiff immediately replied to Harper “[expletive deleted]!

Would have been nice to know about this before I sold 1/2 the

bldg???? I feel a little used.”

Despite the above-referenced express limitation “unless

you‟re talking thousands and thousands of dollars” Plaintiff

placed on his authorization for Mr. Harper to sign Plaintiff‟s

name “on any insurance checks that come in,” Plaintiff later

learned on December 2, 2011 that without consulting

Plaintiff, Defendant Harper had endorsed Plaintiff‟s name to

the $566,662.38 check anyway. Thereafter, the Defendants

beseeched Plaintiff to endorse a second insurance company

check, in the amount of $502,999.27, on the basis that Harper

and Hurst desperately needed the money and promised “to

make things right with you.” Specific discussions included

various options including a promissory note in favor of

Plaintiff secured by a deed of trust on the HH building. The

Defendants Harper and Hurst not only failed “to make it

right,” but instead ultimately told Plaintiff shortly before suit

was instituted in this cause that they not only did not intend to

make it right but in fact intended to do nothing about this

$1,069,661.65 cash asset of the partnership . . . Plaintiff

maintains that the Defendants Harper and Hurst fraudulently

misrepresented their promises of future action “to make

things right” without the present intention to carry out their

promises.

Had Plaintiff been made aware of the pending insurance

payment totaling $1,069,661.65, he would not have sold his

fifty percent interest in the HH partnership to Hurst for

$1,250,000 but instead would have insisted upon his rightful

entitlement to one half of this added value to the building, or

approximately $535,000, bringing his total payment for his

fifty percent interest in the partnership to $1,785,000.

Moreover, but for the Defendants‟ fraudulent inducements

and promissory fraud “to make things right with you” in

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regard to the $1,069,661.65 insurance proceeds, he would

never have endorsed the second insurance company check in

the amount of $502,999.27.

(Emphasis added; footnotes added; terms “the Affiant” and “Mr. Huddleston” in original

replaced by “Plaintiff” in this quote for ease of reference; capitalization in original.)

In their answer, Defendants state:

Defendants admit the following: (a) Plaintiff remained a full

partner, owning a 50% interest in the HH partnership until

October 31, 2011; (b) Hurst acquired Plaintiff‟s 50% interest

[in] the HH partnership; (c) the partnership received

insurance funds totaling $1,068,761.65 after Plaintiff sold his

interest in the HH partnership to Hurst; and (d) Defendants

were aware of the pending insurance claim for approximately

two months prior to Plaintiff selling his interest to Hurst and

did not discuss such claim with Plaintiff.

Accepting the facts in Plaintiff‟s affidavit as true and considering the allegations in

Defendants‟ answer that are favorable to Plaintiff, and drawing all reasonable inferences

in his favor, as we must in a review of summary judgment, we are of the opinion that

there are genuine issues of material fact in this case rendering summary judgment

inappropriate. Plaintiff has presented evidence which, if believed by the trier of fact,

establishes that Defendants failed to disclose an important and material fact ‒ the

existence of a potential asset of the partnership worth over a million dollars. Plaintiff‟s

affidavit states that Defendants affirmatively represented that the value of the HH

building was a million dollars less than it actually was because of damage to the roof.

Arguably, this representation was not true because money from an external source – the

insurance company – was going to be available to go toward the repair of the roof.

Further, Plaintiff stated that “at no time prior to October 31, 2011” when he signed the

assignment and sale of partnership interest agreement was he “made aware that the

Defendants had filed an insurance claim for hail damage to the HH building roof.” He

has raised a reasonable inference of detrimental reliance by stating that he agreed to sell

his one-half interest at a price reduced by the amount Defendants told him it would cost

to repair the roof. Plaintiff‟s admissible statements in his affidavits create genuine issues

of material fact regarding his claim for intentional misrepresentation.

The facts favorable to Plaintiff, if true, in addition to the assertion that Harper

endorsed Plaintiff‟s name to the first insurance check without Plaintiff‟s permission, also

support a finding of breach of the fiduciary duty owed by one partner to another, and of

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the duty of good faith and fair dealing. See Tenn. Code Ann. § 61-1-404(d); Dick Broad.

Co. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 660 (Tenn. 2013) (“there is implied in

every contract a duty of good faith and fair dealing in its performance and enforcement”)

(emphasis in original).

Defendants rely upon the release in the sale agreement executed by the parties,

which states in pertinent part:

Full Release. By his execution hereof, Seller hereby releases

the Partnership and all partners of the Partnership from all

actions, claims, liabilities, obligations, litigation and other

matters relating to or arising from the operation of the

Partnership or the business of the Partnership.

(Underlining in original.) Over 80 years ago this Court observed that “[i]t is well settled

that a release or discharge, the execution of which is procured by false and fraudulent

representations, is voidable or void, and may be set aside at the instance of the party

defrauded.” Crigger v. Mut. Ben. Health & Accident Ass’n, 69 S.W.2d 907, 912 (Tenn.

Ct. App. 1933); see also Ewan v. Hardison Law Firm, No. W2011-00763-COA-R3-CV,

2012 WL 1269148 at *8 (Tenn. Ct. App. W.S., filed Apr. 16, 2012) (vacating summary

judgment based on release where “genuine issue of material fact existed as to the

elements of fraud in the inducement of the Release”); Evans v. Tillett Bros. Const. Co.,

545 S.W.2d 8, 11 (Tenn. Ct. App. 1976) (“a release, the execution of which is procured

by false and fraudulent representations is voidable or void, and may be set aside at the

instance of the party defrauded. There is abundant authority to support the rule that a

false representation as to one of several matters which is material and which enters into

the consideration in procuring a settlement is sufficient to render a release void.”). In

light of facts in the record supporting Plaintiff‟s claim of intentional misrepresentation

regarding the efficacy of the release, there is a genuine issue of material fact as to the

validity of the release.

Neither the trial court, in its memorandum opinion and order, nor the Defendants,

in their brief, have addressed Plaintiff‟s promissory fraud claim ‒ that “but for the

Defendants‟ fraudulent inducements and promissory fraud “to make things right with

[him]” in regard to the $1,069,661.65 insurance proceeds, he would never have endorsed

the second insurance company check.” In D’Alessandro v. Lake Developers, II, LLC,

No. E2011-01487-COA-R3-CV, 2012 WL 1900543 at *7 (Tenn. Ct. App. W.S., filed

May 25, 2012), we stated:

Unlike with negligent misrepresentation, a claim of

promissory fraud in Tennessee may be based upon alleged

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misrepresentations involving future events. See Kroger v.

Legalbill.com, 436 F.Supp.2d 97, 107 (D.D.C. 2006) (citing

Shahrdar v. Global Housing, Inc., 983 S.W.2d 230, 237

(Tenn. Ct. App. 1998)) (footnote omitted). The elements of

the claim are as follows:

(1) an intentional misrepresentation of a fact material to the

transaction; (2) knowledge of the statement‟s falsity or utter

disregard for its truth; (3) an injury caused by reasonable

reliance on the statement; and (4) a promise of future action

with no present intent to perform.

Hood Land Trust v. Hastings, No. M2009–02625–COA–R3–

CV, 2010 WL 3928647, at *7 (Tenn. Ct. App. Oct. 5, 2010)

(quoting Houghland v. Houghland, No. M2005-01770-

COA-R3-CV, 2006 WL 2080078, at *3 (Tenn. Ct. App. July

26, 2006)). Thus, “[t]o show promissory fraud, plaintiff must

prove that the alleged misrepresentation „embod[ies] a

promise of future action without the present intention to carry

out the promise.‟ ” Id. (quoting Stacks v. Saunders, 812

S.W.2d 587, 592 (Tenn. Ct. App. 1990)). “The promisor‟s

intention must be shown to „be false by evidence other than

subsequent failure to keep the promise or subjective surmise

or impression of promisee.‟ ” Id. (quoting Biodynamic

Techs., Inc. v. Chattanooga Corp., 658 F.Supp. 266, 268

(S.D. Fla. 1987) (applying Tennessee law); see also

American Cable Corp. v. ACI Mgmt., Inc., 2000 WL

1291265, at *5 (Tenn. Ct. App. Sept. 14, 2000) (“In the

context of a promissory fraud claim, the mere fact that the

promisor failed to perform the promised act is insufficient by

itself to prove fraudulent intent. The reason is that ordinarily,

where nothing else is shown, mere failure to perform a

promise can be as consistent with an honest intent as with a

dishonest one. Not every broken promise starts with a lie.”)

(internal citations omitted)).

In this case, Plaintiff has alleged that Defendants‟ promise “to make things right

with you” regarding the insurance proceeds was dishonest and made with no intention to

carry it out. Plaintiff‟s affidavit states that the parties engaged in “[s]pecific discussions,

[which] included various options including a promissory note in favor of Plaintiff secured

by a deed of trust on the HH building,” as a possible way to “make things right.” In the

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context of promissory fraud, “[t]he question of intent is a question of fact for the finder of

fact.” Dog House Investments, LLC v. Teal Properties, Inc., 448 S.W.3d 905, 916

(Tenn. Ct. App. 2014); Styles v. Blackwood, No. E2007-00416-COA-R3-CV, 2008 WL

5396804 at *7 (Tenn. Ct. App. E.S., filed Dec. 29, 2008) (“Whether the defendant has the

present intent not to comply with a promise is a question of fact.”) (quoting Noblin v.

Christiansen, No. M2005-01316-COA-R3-CV, 2007 WL 1574273 at *10 (Tenn. Ct.

App. M.S., filed May 30, 2007)). Furthermore, “[w]hether a plaintiff‟s reliance on an

alleged misrepresentation is reasonable is generally a question of fact, and thus, is

generally not appropriate for summary judgment.” Biancheri v. Johnson, No. M2008-

00599-COA-R3-CV, 2009 WL 723540 at *8 (Tenn. Ct. App. M.S., filed Mar. 18, 2009).

There are genuine issues of material fact in this case regarding whether

Defendants committed promissory fraud and whether Plaintiff reasonably relied upon the

allegedly dishonest promise. Plaintiff has presented proof from which a reasonable trier

of fact could conclude that Defendants‟ promise “to make things right with you” was

made with no intention of carrying it out. This proof includes Defendants‟ admission that

they “were aware of the pending insurance claim for approximately two months prior to

Plaintiff selling his interest to Hurst and did not discuss such claim with Plaintiff”; their

alleged insistence that the HH building was worth one million dollars less than its actual

value when they arguably knew that insurance money would be available to restore the

roof to full value; Plaintiff‟s statement that Harper endorsed Plaintiff‟s name to the

$566,662.38 insurance check despite having no authorization to do so; and Plaintiff‟s

statement in his affidavit that “Defendants Harper and Hurst not only failed „to make it

right,‟ but instead ultimately told Plaintiff shortly before suit was instituted in this cause

that they not only did not intend to make it right but in fact intended to do nothing about

this $1,069,661.65 cash asset of the partnership.”

In light of our disposition of this appeal, it is obvious that this appeal is not

frivolous.

V.

The trial court‟s grant of summary judgment in Defendants‟ favor is vacated, and

the case remanded for further proceedings consistent with this opinion. Costs on appeal

are assessed to the appellees, Kenneth L. Harper and Jerry L. Hurst.

_____________________________________

CHARLES D. SUSANO, JR., CHIEF JUDGE

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