The opinion
07/10/2018
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
May 30, 2018 Session
PREMIER IMAGING/MEDICAL SYSTEMS, INC. v. COFFEY FAMILY
MEDICAL CLINIC, P.C.
Appeal from the Circuit Court for Scott County
No. 9058 John D. McAfee, Judge
No. E2017-02186-COA-R3-CV
This appeal arises from a breach of contract action. Premier Imaging/Medical Systems,
Inc. (“Premier”) contracted with Coffey Family Medical Clinic, P.C. (“CFMC”), an
organization formed by Dr. D. Bruce Coffey, M.D. (“Dr. Coffey”), for a five year
servicing contract (“the Contract”) under which Premier would provide service for a CT
Scanner (“the Scanner”). Pioneer Health Services of Oneida (“Pioneer”) and Dr. Coffey
later entered into an agreement whereby Pioneer assumed certain obligations, apparently
including the Contract. At CFMC’s request, Premier began billing Pioneer. Pioneer
eventually stopped making payments under the Contract. Premier sued CFMC in the
Circuit Court for Scott County (“the Trial Court”) to recover on the remainder of the
Contract. CFMC argued that Pioneer became a substituted obligor under a theory of
novation. After trial, the Trial Court held that CFMC failed to prove novation, awarded
Premier $89,166.60 for the twenty months remaining on the Contract, and granted
prejudgment interest of ten percent from the end of the Contract for a total of
$105,534.70. CFMC appeals. We hold, inter alia, that the Trial Court did not err in
holding that CFMC was unable to meet its burden of proving that novation, implied or
otherwise, occurred. We affirm the judgment of the Trial Court.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed;
Case Remanded
D. MICHAEL SWINEY, C.J., delivered the opinion of the court, in which CHARLES D.
SUSANO, JR. and JOHN W. MCCLARTY, JJ., joined.
Dudley W. Taylor, Knoxville, Tennessee, for the appellant, Coffey Family Medical
Clinic, P.C.
John R. Cheadle, Jr. and Mary Barnard Cheadle, Nashville, Tennessee, for the appellee,
Premier Imaging/Medical Systems, Inc.
OPINION
Background
The material facts of this case largely are undisputed. Dr. Coffey formed CFMC
in 2003. Premier is in the business of servicing medical imaging equipment. In
November 2010, the Contract was signed between CFMC and Premier. Premier was to
service the Scanner used by CFMC for five years at a rate of $53,500.00 per year,
payable at $4,458.33 per month. The effective date of the Contract was January 1, 2011.
The Contract permitted customer cancellation “due to documented quality of service
issues only.”
In November 2013, Dr. Coffey and Pioneer executed a physician employment
agreement, effective January 1, 2014. Dr. Coffey, in his capacity as landlord, and
Pioneer as tenant also entered into a lease for real property dated December 12, 2013. As
part of this agreement, Pioneer assumed certain contractual liabilities among which was
the Contract. Premier was not a party to this particular agreement. Prior to January
2014, CFMC, or Dr. Coffey, paid on the Contract to Premier. CFMC requested that
Premier begin billing Pioneer. Premier and Pioneer engaged in correspondence over the
matter. Premier’s President, Robin West (“West”), responded in part: “I assume when
you purchased [CFMC] you assumed their liabilities” and “[w]e will send future invoices
to [Pioneer] unless we can come to some kind of equitable agreement.” In February
2014, Dr. Coffey, on CFMC letterhead, sent a letter to Premier purporting to cancel the
Contract between CFMC and Premier. Premier and CFMC never executed a written
document to modify the Contract. Pioneer made the monthly payments under the
Contract only for the months of January, February, March and April 2014.
This arrangement quickly collapsed. In May 2014, CFMC sold the Scanner. In
April 2015, Pioneer terminated both Dr. Coffey’s employment agreement and the lease
arrangement. Premier stopped getting paid on the Contract, and there no longer was a
scanner to service. In January 2017, Premier sued CFMC in the Trial Court.
This matter was tried in November 2017. The principal testimony came from
West, Premier’s president. West testified, in part, as follows:
Q. So would there have been anything for you to object to as far as Coffey
Family Medical claiming that they are no longer on the hook for this
contract and Pioneer should be?
A. No. I never intended to let Coffey Medical off the hook.
Q. But were they ever asking you to do that?
A. No, they did not.
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THE COURT: You were just told to bill them?
THE WITNESS: I was told to bill Pioneer by Coffey.
THE COURT: To send the bill to Pioneer?
THE WITNESS: Yes.
BY MS. CHEADLE:
Q. And you left Coffey Family Medical’s name on each of those bills; is
that correct?
A. Yes, I did.
***
Q. You say you never intended to let Coffey Family Medical off, but you
never did tell them that, did you?
A. The contract was in place. I had no reason to tell them that.
Q. I understand, but when they asked you to now bill Pioneer, and Pioneer
wrote you and said that we’ve taken over the practice, you didn’t object to
that, did you?
A. Didn’t object to -- how can I object to them taking over the practice?
Q. Just answer the question. Then you can add whatever you want.
A. Ask the question in a way that I can answer it. I -- I’m -- I don’t follow
you.
Q. You never -- you sent the letter, we just talked about that, saying, Okay,
I assume you took over. This can’t be cancelled?
A. Right.
Q. So -- but -- so is there anything in writing that said, but we’re keeping
Coffey Family Medical on the hook?
A. Nothing other than the original contract, no.
Q. Okay. All right. And you never billed Coffey Family Medical Center
again after these letters and you started your billing to Pioneer, did you?
A. No. I let my attorney handle that after that.
Q. Okay. What, in your opinion, was the CT machine worth at the time
you did your last work?
A. You’re asking me to be an appraiser, and I -- I hadn’t seen the machine
in probably two years prior to that.
Q. Okay.
A. I sent people in, you know.
Q. But you’ve got all this money in it, right? You put 100,000 in the
machine in the tube or something like that, right?
A. Right.
Q. So you think it would be worth 3 or 400,000?
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A. No. The thing about medical equipment is, it depreciates very rapidly. I
mean, if you don’t scan with it a lot and you don’t get your money back off
the patients, it’s a losing proposition. You never recover -- I mean, they
depreciate so fast it would -- it would make -- make you sick if you were
buying that as an investment. It’s not -- I mean, you have to get the money
out of the patient.
Tony Taylor (“Taylor”), Pioneer CEO, testified as well. Taylor testified to
discussions with Premier regarding a possible transfer of the Contract rights and
obligations to a CT machine in Aberdeen, Mississippi. According to Taylor, the
negotiations fell through because Premier insisted on a contract either for “three-year and
it would have cost $345,000 or a five-year would have been a half a million dollars at
105,000 a year.”
Following trial, the Trial Court found in favor of Premier and instructed Premier’s
counsel to prepare the order. The Trial Court telephoned Premier’s counsel directing the
inclusion of certain findings of fact and conclusions of law, and faxed Premier’s counsel
these supplemental findings and conclusions. The Trial Court subsequently informed
CFMC’s counsel as to what happened. In December 2017, the Trial Court entered its
final judgment. The Trial Court found as follows:
This cause came on to be heard on November 1, 2017, upon Premier
Imaging / Medical Systems, Inc.’s (“Premier”) suit to recover the balance
due on a five (5) year Periodic Maintenance Contract/General Agreement
upon which Premier was to provide periodic maintenance, service and parts
for a “General Electric QX/I Lightspeed CT with H1 gantry”, a CT scanner,
owned by defendant, Coffey Family Medical Clinic, P.C. (“CFMC”). Prior
to the hearing, the parties filed a joint stipulation of facts and documents
that are not in dispute. It is undisputed that Premier contracted with CFMC
on January 1, 2011, for a five (5) year servicing contract for $53,500.00 per
year, payable at $4,458.33 per month. The parties agreed that the amount
still owing on the contract is $89,166.60. CFMC asserts that there [h]as
been a novation and that a third party, Pioneer Health Services of Oneida
(“Pioneer”), should be liable for the balance due.
Robin West, Premier’s president, testified that Premier utilizes three
(3) or five (5) year contracts to spread the risk and costs associated with
servicing and maintaining equipment. CFMC elected to enter into a five
(5) year contract with Premier. Mr. West testified that Premier expended
$400,000.00 to service and maintain CFMC’s CT scanner. Premier has
only received $188,621.52 in payments. Mr. West testified that Premier
likely would not have renewed the contract with CFMC due to the fact that
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Premier was not making a profit on the contract. It is undisputed that
CFMC never notified Premier of any quality of service issues. Mr. West
testified that in January 2014, Premier was notified by CFMC to begin
billing a third party, Pioneer. Premier introduced invoices that were sent to
Pioneer listing CFMC’s name and address as the “Ship To” address. Mr.
West testified that Pioneer attempted to cancel the underlying contract on
behalf of CFMC through a letter dated January 17, 2014, from Pioneer’s
CEO, Tony Taylor. Premier first learned of Pioneer’s arrangement with
CFMC upon receipt of Mr. Taylor’s January 17, 2014, letter. Premier
introduced Mr. West’s January 27, 2014, letter responding to Pioneer
confirming that Premier had an active five (5) year service agreement with
CFMC that could only be cancelled due to documented quality of service
issues. Premier received four (4) payments from Pioneer for CFMC’s
monthly obligations for January 2014 to April 2014. Pioneer paid the
January 2014 payment to Premier on April 30, 2014, the February 2014
payment to Premier on June 9, 2014, and the March and April 2014
payments to Premier on June 30, 2014. Each of the invoices that Pioneer
paid listed CFMC as the ship to address. Mr. West testified that Premier
never discharged, nor had the intent to discharge, CFMC from the original
service contract of January 1, 2011. Mr. West testified that Premier never
entered into, nor had the intent to enter into, a contract with Pioneer. Mr.
West testified that twenty (20) months remained due on the underlying
service contract.
Alan Ray Godfrey, service manager and engineer for Premier,
testified for Premier. Mr. Godfrey testified that he routinely provided
services to CFMC on Premier’s behalf pursuant to the underlying contract.
Mr. Godfrey testified that Premier had expended costs of $400,000.00 to
service and maintain CFMC’s CT scanner. Premier introduced Mr.
Godfrey’s work order for February 21, 2014, which details the services
provided by Premier on CFMC’s CT scanner. Mr. Godfrey testified that at
the time of the February 21, 2014, service, CFMC’s CT scanner was not
being used by CFMC. Mr. Godfrey testified that when he attempted to
schedule the next quarterly service with CFMC, Mr. Godfrey was informed
by CFMC that the CT scanner had been sold. The last service that Premier
was able to perform on CFMC’s CT scanner was February 21, 2014,
because CFMC sold its CT scanner on May 20, 2014.
Tony Taylor, prior CEO of Pioneer and administrator of the Scott
County Hospital when Pioneer operated the hospital, testified pursuant to a
subpoena from CFMC. Mr. Taylor testified that Pioneer entered into a
physician employment agreement with Dr. Coffey, CFMC’s principal, with
an effective date of January 1, 2014, for a four (4) year term. Mr. Taylor
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testified that Pioneer also entered into a lease agreement with Dr. Coffey to
lease Dr. Coffey’s real property in which he conducted CFMC’s medical
practice with an effective date of January 1, 2014, for a four (4) year term.
Mr. Taylor testified that Pioneer, pursuant to the terms of the lease
agreement, agreed to assume certain medical diagnostic leases,
maintenance contracts, and other liabilities during the term of the lease,
including the service contract that is the subject of this lawsuit. Mr. Taylor
testified that Pioneer never intended to use CFMC’s CT scanner. Mr.
Taylor testified that Pioneer’s intention was to have Dr. Coffey direct all
patients to Pioneer’s hospital for any needed CT scans. Mr. Taylor testified
that Dr. Coffey was aware or should have been aware that Pioneer never
intended to use CFMC’s CT scanner, since Dr. Coffey was under a
directive from Pioneer to begin referring any and all patients needing CT
scans to Scott County Hospital. Mr. Taylor confirmed that Pioneer
attempted to cancel the original service agreement between Premier and
CFMC in a letter dated January 17, 2014, Mr. Taylor sent to Premier. In a
follow-up letter from Premier to Pioneer dated January 27, 2014, Premier
confirmed “an active service agreement” existing between Premier and
CFMC.
Premier billed and accepted four payments (January-April 2014)
from Pioneer. Pioneer paid the service payment for January 2014 on April
30, 2014; Pioneer paid the service payment for February 2014 on January 9,
2014; and Pioneer paid the service payments for March and April 2014 on
June 30, 2014. The billing statements of January-April 2014 were also
shipped to CFMC. Mr. Taylor testified that Pioneer made four (4) of the
monthly payments on the underlying contract for the months of January
2014 to April 2014. Mr. Taylor testified that Pioneer never required CFMC
to sell CFMC’s CT scanner. Mr. Taylor testified that Pioneer terminated
Dr. Coffey’s employment on April 30, 2015. Mr. Taylor testified that
Pioneer terminated the lease agreement for Dr. Coffey’s medical practice
office building on April 30, 2015. Mr. Taylor testified that Pioneer never
intended to enter into a contract with Premier.
Charsley Coffey, CFMC’s current office manager and Dr. Coffey’s
spouse, testified for CFMC. Ms. Coffey testified that CFMC sold the CT
scanner on May 20, 2014, for $24,000.00. Ms. Coffey testified that none of
the proceeds received from the sale of the CT scanner was paid to Premier.
The Court finds that there was not a novation. The burden of proof
is on the party asserting novation. A novation is never presumed. It must
be established by a clear and definite intention on the part of all concerned.
CFMC failed to show clear evidence that there was a clear and definite
intention on the part of all parties to extinguish the underlying contract and
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to enter into a new contract. CFMC has failed to show that Premier
discharged CFMC from its obligation. The totality of the facts and
circumstances clearly do not show the assumption of such extinguishment
and acceptance by Premier. Premier and Pioneer both confirm that neither
had an intent to enter into a new contract. The Court finds that CFMC was
not discharged from its obligation to Premier based upon the following
facts: (1) Premier’s invoices continued to list CFMC’s name and address as
the ship to location; (2) Robin West’s letter of January 27, 2014, to Pioneer
confirmed that Premier still had an active service agreement with CFMC;
(3) Dr. Coffey’s letter of February 7, 2014, to Premier attempting to cancel
the contract confirms that CFMC was aware that CFMC was still
responsible since CFMC was attempting to cancel the contract to which
CFMC was a party, and CFMC acknowledges that CFMC was the
originating party to the contact; (4) Mr. Taylor testified that CFMC was
aware that there was never an intention by Pioneer to use CFMC’s CT
scanner after January 2014; and (5) Pioneer admits and confirms that it
never intended to enter into a contract with Premier. Thus, CFMC failed to
show clear evidence showing a total discharge of the original service
contract and an express agreement by Premier to accept a new obligation in
place of the old contract, or such facts and circumstances that clearly show
the assumption of such extinguishment and acceptance by Premier. The
underlying obligation was never extinguished, and CFMC’s obligation to
Premier remained in effect. The Court finds that CFMC is indebted to
plaintiff on the servicing contract, and that judgment should enter in favor
of Premier against CFMC.
The Court further finds that CFMC is indebted to Premier for pre-
judgment interest at the rate of 10 percent per annum from December 31,
2015, to the date of trial. The Court finds that Dr. Coffey, CFMC’s alter-
ego and principal, knew that Pioneer never intended to use CFMC’s CT
scanner. Dr. Coffey had the obligation and responsibility to at least bring
the parties together to work out the remaining twenty (20) months owed on
the underlying service cont[r]act. At a minimum, Dr. Coffey had an
obligation to renegotiate the lease agreement with Pioneer, aware that
Pioneer would never use CFMC’s CT scanner. The Court finds that CFMC
sold the CT scanner and failed to pay any of the proceeds to Premier, when
there was still an active servicing contract in effect.
It is, accordingly, ORDERED, ADJUDGED AND DECREED that
defendant, Coffey Family Medical Clinic, P.C., pay to plaintiff, Premier
Imaging / Medical Systems, Inc., the sum of $89,166.60, plus pre-judgment
interest from December 31, 2015, to the date of trial in the amount of
$16,368.10, for a total of $105,534.70; to accrue post-judgment interest at
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the rate of 6.25 percent per annum, pursuant to T.C.A. § 47-14-121. The
costs of this cause are assessed to CFMC; for all of the foregoing execution
may issue. This is a final judgment, pursuant to Rule 54.02, Tennessee
Rules of Civil Procedure, there being no just reason for delay.
CFMC timely appealed to this Court.
Discussion
Although not stated exactly as such, CFMC raises the following issues on appeal:
1) whether the Trial Court exercised its independent judgment in entering the final
judgment drafted by prevailing counsel after engaging in ex parte communications with
said counsel; 2) whether the Trial Court erred in declining to find novation between the
parties when Premier, according to CFMC, accepted Pioneer as a substitute obligor and
stopped billing CFMC; 3) whether the Trial Court erred in its measure of damages when
no additional services were performed after February 2014; and 4) whether the Trial
Court erred in awarding prejudgment interest when it failed to articulate its reasoning
either for the award or the interest rate of 10%.
Our review is de novo upon the record, accompanied by a presumption of
correctness of the findings of fact of the trial court, unless the preponderance of the
evidence is otherwise. Tenn. R. App. P. 13(d); Bogan v. Bogan, 60 S.W.3d 721, 727
(Tenn. 2001). A trial court’s conclusions of law are subject to a de novo review with no
presumption of correctness. S. Constructors, Inc. v. Loudon County Bd. of Educ., 58
S.W.3d 706, 710 (Tenn. 2001).
We first address whether the Trial Court exercised its independent judgment in
entering the final judgment drafted by prevailing counsel after engaging in ex parte
communications with said counsel as set out earlier in this Opinion. CFMC asserts, in a
respectful fashion, that the final judgment reflects a cherry-picked version of the case
favorable to Premier and not the Trial Court’s own independent judgment. Regarding the
necessity that judicial decisions be rendered independently, our Supreme Court has
stated:
The essential purposes of courts and judges are to afford litigants a public
forum to air their disputes, and to adjudicate and resolve the disputes
between the contending parties. To carry out these purposes, judges must
arrive at their decisions by applying the relevant law to the facts of the case.
Because making these decisions is a high judicial function, a court’s
decisions must be, and must appear to be, the result of the exercise of the
trial court’s own judgment.
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Smith v. UHS of Lakeside, Inc., 439 S.W.3d 303, 312 (Tenn. 2014) (citations and
quotation marks omitted).
The Trial Court declined to incorporate a transcript of its oral ruling into the final
judgment. Normally, we would therefore confine ourselves to the Trial Court’s written
judgment in conducting appellate review. However, as CFMC questions the
independence of the order itself, we deem it appropriate to examine the Trial Court’s oral
ruling to determine whether CFMC’s argument is meritorious. The Trial Court
articulated orally its rationale for deciding as it did as follows:
THE COURT: All right. Well -- and again, the issue is novation, and I
think counsel pointed out a significant portion of the letter dated 27, 2014,
from Mr. West to Mr. Taylor where he clearly indicates that we have an
agreement with CFMC for five years. And he makes that -- and again,
novation is just simply the substitution of a new contract for an old one.
The new contract extinguishes the rights and the obligations that were in
effect under the old agreement. In a novation situation, the original debtor
here, which would be CFMC, has to be totally, totally released from their
obligation, which is transferred here in this case, it’s argued, to Pioneer.
All parties must agree to that. I can’t find that in the record. I can’t find
that this was a total release. The argument that somehow or another
Premier agreed to substitute or to relieve CFMC of their legal obligation
under the Service Agreement by accepting payments from Pioneer
somehow or another released CFMC, I cannot see that, nor can I agree to
that. And therefore, the Court is finding, based upon the facts and
circumstances and the totality of the case of the facts presented, that a
novation does not exist in this case, and therefore, the original contract or
the obligation between CFMC and Premier is still valid. And therefore, the
Court’s going to award the judgment for the plaintiff in this matter for the
20 months, which was the $89,166.60. Furthermore, the Court’s going to
award the prejudgment interest of 10 percent from the end of the contract
for a number of reasons. Although it’s discretionary for the Court, it’s clear
from the record that Dr. Coffey knew that the machine was never going to
be used in January, and there should have been some obligation on his
behalf. Whether that’s warranted in cases, I don’t know, but there should
have been some obligation or responsibility on Dr. Coffey’s part to at least
bring these parties together and just say, Look, I’m no longer going to use
this machine, and I still owe 20 months. And Pioneer, you and -- before I
enter into this lease agreement with you, then you need to sit down with
Premier and work this out, because I can’t go -- you know, I’m hung on this
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thing. I’m hung here for 20 more months, and if you all don’t work this
out, then we’re going to have to renegotiate the lease agreement. I think
Dr. Coffey had some obligation and responsibility in that context. And
furthermore, he sold the machine for roughly about $24,000 and nothing
was ever paid to Premier. And perhaps if that had been done, maybe I
would have reconsidered the granting of the prejudgment interest in this
case. But because of the machine being sold and because Dr. Coffey
knowing fully and was apprised of the facts and circumstances of his
obligation to Premier that he should have done something more in this
matter in reference to Pioneer and Premier to try to have a binding novation
concerning the parties in this matter. So that will be the order of the Court.
Party-prepared orders are permitted under two conditions: (1) “the findings and
conclusions must accurately reflect the decision of the trial court” and “the record must
not create doubt that the decision represents the trial court’s own deliberations and
decision.” Smith, 439 S.W.3d at 316. An order prepared by counsel must reflect the trial
court’s own independent judgment as expressed by the trial court. The Trial Court made
it abundantly clear, inter alia, that it found no novation, and why. In our view, the final
judgment in this case reflects sufficiently the Trial Court’s own independent judgment.
We would, however, caution trial courts against ex parte communications, and this is so
even when the trial court subsequently notifies the other side of the communication as
happened here. We find no reversible error with respect to the entry of the final
judgment.
We next address whether the Trial Court erred in declining to find novation
between the parties when Premier, according to CFMC, accepted Pioneer as a substitute
obligor and stopped billing CFMC. With respect to novation, this Court has discussed it
as follows:
“A novation is a contract substituting a new obligation for an old one[,]”
thereby extinguishing the existing contract. Blaylock v. Stephens, 258
S.W.2d 779, 781 (Tenn. Ct. App. 1953); see also Pac. E. Corp. v. Gulf Life
Holding Co., 902 S.W.2d 946, 958-59 (Tenn. Ct. App. 1995). The four
essential elements of a novation are: “(1) a prior valid obligation, (2) an
agreement supported by evidence of intention, (3) the extinguishment of the
old contract, and (4) a valid new contract.” Brown v. Columbia Precast,
LLC, No. M2010-00971-COA-R3-CV, 2011 WL 2976891, at *7 (Tenn. Ct.
App. July 21, 2011) (citing Burchell Ins. Servs., Inc. v. W. Sizzlin
Steakhouse of Dyersburg, No. E2003-01001-COA-R3-CV, 2004 WL
1459398, at *3 (Tenn. Ct. App. June 29, 2004)). A novation is never
presumed; rather, it must be established by a “ ‘clear and definite intention
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on the part of all concerned....’ ” Johnson City Elec. Supply Co., Inc. v.
Elec. Inc., CA No. 81, 1986 WL 3885, at *3 (Tenn. Ct. App. Apr. 1, 1986)
(quoting Jetton v. Nichols, 8 Tenn. App. 567, 574 (Tenn. Ct. App. 1928)).
A novation need not be shown by express words, because the evidence
supporting the parties’ intent to agree on a novation “may be implied from
the facts and circumstances attending the transaction and the parties’
subsequent conduct.” Cumberland Cnty. Bank v. Eastman, No. E2005-
00220-COA-R3-CV, 2005 WL 2043518, at *4 (Tenn. Ct. App. Aug. 25,
2005) (citing In re Edward M. Johnson & Assoc., 61 B.R. 801, 806 (Bankr.
E.D. Tenn. 1986)). The party asserting the novation has the burden of
proving a novation is intended. Rhea v. Marko Constr. Co., 652 S.W.2d
332, 334 (Tenn. 1983).
TWB Architects, Inc. v. Braxton, LLC, No. M2013-02740-COA-R3-CV, 2014 WL
5502401, at *4 (Tenn. Ct. App. Oct. 30, 2014), Rule 11 appl. perm. appeal denied Feb.
12, 2015.
Premier states that it never intended to relieve CFMC under the Contract. In
support of its contention, Premier notes the absence of a written agreement to that effect,
as well as the “ship-to” locations identifying CFMC on invoices mailed to Pioneer.
Furthermore, West testified that he never intended to let CFMC “off the hook.” CFMC
argues in response that novation was implicit in Premier’s billing of Pioneer, and that
Premier’s actions at the time are more significant than their later denials.
CFMC is correct that novation need not be express. However, it is incumbent
upon the proponent of novation to prove one occurred. The Trial Court found that
“CFMC failed to show clear evidence that there was a clear and definite intention on the
part of all parties to extinguish the underlying contract and to enter into a new contract.”
Based on this record, Premier accepted payments on the Contract from Pioneer simply
because it wanted to continue being paid on the Contract, not because it intended to
extinguish the underlying contract with CFMC. It made no difference to Premier
whether the payments originated from CFMC or Pioneer. Premier never manifested an
intention to extinguish the underlying contract with CFMC. While novation may be
implied, it still requires “clear and definite intention” from all parties to extinguish the
underlying contract. Additionally, the Trial Court found that Pioneer confirmed “that it
never intended to enter into a contract with Premier.” In this case, no such clear and
definite intention was proven by CFMC. We affirm the Trial Court’s decision that there
was no novation.
We next address whether the Trial Court erred in its measure of damages when no
additional services were performed after February 2014. CFMC acknowledges that 20
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months remained on the Contract for a remaining balance of $89,166.60. However,
CFMC argues that this figure is not the correct assessment of damages. CFMC argues
that Premier being relieved of its obligation to service the Scanner actually was
advantageous to Premier. Premier spent upwards of $400,000 servicing the Scanner. In
CFMC’s estimation, if history were any guide, CFMC may have spared itself a cost of
some $200,000 by not servicing the Scanner for the remaining term of the Contract.
CFMC argues also that Premier failed to mitigate its damages.
The purpose of assessing damages in a breach of contract case is to place the
plaintiff, as nearly as possible, in the same position he would have been in had the
contract been performed. Adams TV of Memphis, Inc. v. Comcorp of Tennessee, Inc., 969
S.W.2d 917, 922 (Tenn. Ct. App. 1997); Action Ads, Inc. v. William B. Tanner Co., Inc.,
592 S.W.2d 572, 575 (Tenn. Ct. App. 1979). The injured party, however, is not to be put
in a better position than he would have been in by recovery of damages for breach of the
contract. Adams TV, 969 S.W.2d at 922.
CFMC recognizes in its appellate brief that whether Premier would have incurred
costs going forward comparable to the ones it earlier had incurred is “unknown to all of
us, including the trial court” and is only a “reasonable inference.” This uncertainty
contrasts with the stipulated and easily calculable balance owing under the plain terms of
the Contract. Had CFMC continued to adhere to the Contract, it would have paid
Premier $89,166.60. It is unduly speculative to guess what future costs Premier would
have incurred in servicing the Scanner pursuant to the Contract, or indeed whether a
hypothetical transfer may have mitigated Premier’s losses. What we do know is that
CFMC sold the Scanner midway through the term of the Contract and prevented Premier
from performing its obligations under the Contract. The Contract allowed CFMC to
cancel only for documented quality of service issues, which are not presented here. We
find no reversible error in the Trial Court’s award of damages to Premier of $89,166.60.
The final issue we address is whether the Trial Court erred in awarding
prejudgment interest when it failed to articulate its reasoning either for the award or the
interest rate of 10%. Regarding prejudgment interest, this Court has stated:
“An award of prejudgment interest is within the sound discretion of
the trial court and the decision will not be disturbed by an appellate court
unless the record reveals a manifest and palpable abuse of discretion.”
Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn. 1998) (citing
Spencer v. A-1 Crane Serv., Inc., 880 S.W.2d 938, 944 (Tenn. 1994); Otis
v. Cambridge Mut. Fire Ins. Co., 850 S.W.2d 439, 446 (Tenn. 1992)). The
purpose of prejudgment interest “is to fully compensate a plaintiff for the
loss of the use of funds to which he or she was legally entitled, not to
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penalize a defendant for wrongdoing.” Myint, 970 S.W.2d at 927. In
Tennessee, several principles guide trial courts in exercising their discretion
to award prejudgment interest. “Foremost are the principles of equity.” Id.;
Tenn. Code Ann. § 47-14-123. The trial court must decide whether the
award of prejudgment interest is fair, given the particular circumstances of
the case. Myint, 970 S.W.2d at 927. Additionally, “[t]he certainty of the
plaintiff’s claim is but one of many nondispositive facts to consider when
deciding whether prejudgment interest, is, as a matter of law, equitable
under the circumstances.” Id. at 928.
SecurAmerica Business Credit v. Southland Transportation Co., LLC., No. W2015-
00391-COA-R3-CV, 2016 WL 1292087, at *7 (Tenn. Ct. App. April 1, 2016), no appl.
perm. appeal filed.
The range in which prejudgment interest may be set is addressed by statute as
follows:
Prejudgment interest, i.e., interest as an element of, or in the nature of,
damages, as permitted by the statutory and common laws of the state as of
April 1, 1979, may be awarded by courts or juries in accordance with the
principles of equity at any rate not in excess of a maximum effective rate of
ten percent (10%) per annum; provided, that with respect to contracts
subject to § 47-14-103, the maximum effective rates of prejudgment
interest so awarded shall be the same as set by that section for the particular
category of transaction involved. In addition, contracts may expressly
provide for the imposition of the same or a different rate of interest to be
paid after breach or default within the limits set by § 47-14-103.
Tenn. Code Ann. § 47-14-123 (2013).
Premier initially sought $174,832.10 based on an erroneous recital in the Contract
providing it ran from January 1, 2011 through December 31, 2016 for a six year term
rather than a five year term as everyone agrees was the actual term. Premier later
conceded that the correct figure is $89,166.60 for the 20 months remaining on the
Contract. CFMC argues, among other things, that this uncertainty over the claim
precludes an award of prejudgment interest and that the rate of 10% is excessive and
unfounded.
In our view, any discrepancy appears to be one merely of tabulation rather than an
inherent uncertainty over the claim. There is no dispute over what remains owing for 20
months under the Contract, even though CFMC disputes that as the proper calculation of
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damages. In any event, as cited in the precedent above, certainty of a claim is but one
nondispositive fact to consider when deciding whether to award prejudgment interest.
The dispositive question is whether it is fair under the circumstances of the case.
The Trial Court found that CFMC “sold the CT scanner and failed to pay any of
the proceeds to Premier, when there was still an active servicing contract in effect.”
CFMC, in selling the Scanner midway through the term of the Contract and effectively
bolting on the Contract, pulled the rug out from underneath Premier. The Trial Court had
a legitimate basis on which to conclude it is equitable that Premier should be
compensated fully for loss of the use of funds to which it was entitled.
The rate of 10% chosen by the Trial Court is high indeed but within the law. We
note that the Trial Court, to CFMC’s benefit, ordered that the 10% interest did not start
until the contract end date of December 31, 2015 rather than from the date each separate
monthly payment was due. We are mindful that the decision to award prejudgment
interest and at the rate it did subject to statutory limit was a discretionary matter for the
Trial Court. We find no palpable or manifest abuse of discretion in the Trial Court’s
decision to award prejudgment interest at 10% to Premier. We affirm the judgment of the
Trial Court in its entirety.
Conclusion
The judgment of the Trial Court is affirmed, and this cause is remanded to the
Trial Court for collection of the costs below. The costs on appeal are assessed against the
Appellant, Coffey Family Medical Clinic, P.C., and its surety, if any.
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D. MICHAEL SWINEY, CHIEF JUDGE
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