Houston Humphreys LLC v. Houston Street Partners, LLC

08/19/2022

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

March 2, 2022 Session

HOUSTON HUMPHREYS LLC v. HOUSTON STREET PARTNERS, LLC

ET AL.

Appeal from the Chancery Court for Davidson County

No. 20-0898-IV Russell T. Perkins, Chancellor

___________________________________

No. M2021-00235-COA-R3-CV

___________________________________

This appeal concerns the purchase and sale agreement for a 98,094-square-foot, multi-use

commercial development in Nashville, Tennessee, known as Houston Station. Before

marketing the property for sale, the defendant-seller discovered that approximately 100

square feet of the building encroached on neighboring property owned by CSX

Transportation, Inc. and sought a lease from CSX to cover the encroachment. But before it

could reach an agreement with CSX, the seller agreed to sell the property to the plaintiff-

buyer. The buyer deposited $3 million as earnest money, and the parties scheduled a

closing. Before closing, however, CSX demanded $550,000 per year for the encroachment.

The seller then informed the buyer that it could not meet its obligations under their

agreement. Meanwhile, the seller breached the agreement by executing two new leases

without the buyer’s approval. The buyer extended the closing several times to allow the

seller to cure its defaults, but the seller refused to terminate the new leases and could not

reach a mutually agreeable arrangement with CSX. The buyer then let the closing deadline

lapse and sued for, inter alia, reformation of the purchase agreement, specific performance,

and damages. The seller then moved for summary judgment and requested an award of the

earnest money on the theory that the buyer waived its objections by allowing the closing

deadline to lapse. The trial court granted the motion, reasoning that the buyer had

constructive notice of the encroachment and then breached the purchase agreement by

failing to buy the property. Accordingly, the court found the seller was entitled to the $3

million deposit as liquidated damages and an award of attorneys’ fees and expenses under

the agreement as the prevailing party. The buyer appeals. Following a thorough review, we

respectfully disagree that the buyer had constructive notice that the seller did not have good

and marketable title. We also disagree that the seller had a right to terminate the contract

and receive the earnest money. Thus, we reverse the trial court’s judgment and remand for

further proceedings consistent with this opinion.

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

in Part, Vacated in Part, and Remanded

FRANK G. CLEMENT JR., P.J., M.S., delivered the opinion of the Court, in which ANDY D.

BENNETT and W. NEAL MCBRAYER, JJ., joined.

Peter C. Sales and Edmund S. Sauer, Nashville, Tennessee, and Bradley J. Hamburger,

Dione Garlick, James P. Fogelman, and Daniel R. Adler, Los Angeles, California, for the

appellants Houston Humphreys, LLC.

Ryan T. Holt, Andrea J. Sinclair, Amy K. R. Mohan, Alice E. B. Haston, and Mark A.

Carver, Nashville, Tennessee, for the appellees, Houston Street Partners, LLC; Humphreys

Street Investments, LLC; and Gordon Gilbreath.

OPINION

FACTS AND PROCEDURAL BACKGROUND

I. BACKGROUND

In the early 1900s, a large factory (“the Houston Station Building”) was constructed

on a 1.53-acre, triangular piece of land (“the Houston Station Parcel”) at 434 Houston

Street in Nashville, Tennessee. Around the same time, a 13-foot wide, 0.18-acre strip of

the Houston Station Parcel was conveyed to the neighboring railway in exchange for the

railway’s agreement to build a side track. The conveyance was recorded in a 1903 Deed

(“the 1903 Deed”) that depicted the conveyed area as a darkened strip between the

remaining land and the railway’s preexisting, 50-foot right-of-way:

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One hundred years later, in 2005, Houston Street Partners, LLC (“Seller”),

purchased the Houston Station Parcel and Building. Seller then obtained a land survey (“the

2006 Survey”) that showed the parcel was 1.35 acres1 in size and revealed that the southeast

corner of the Houston Station Building encroached onto a “13′ USE EASEMENT” on the

railway’s property, which was now owned by CSX Transportation, Inc. (“CSX”):

Over the next several years, Seller transformed the Houston Station Building into a

mixed-use development and executed leases with several tenants, including one of

Nashville’s most popular restaurants, Bastion, whose lease included the corner of the

Building that encroached on CSX’s property (“the CSX Parcel”). Believing it had

permission to use the CSX Parcel, Seller allowed its tenants to use the strip of land as an

access road for deliveries, trash pickup, and employee parking.

In December 2018, CSX sent Seller a cease-and-desist letter demanding Houston

Station tenants stop using its property. Because the CSX Parcel was the only means of

access to the rear of the Houston Station Building, Seller’s Chief Partner, Gordon

Gilbreath, asked CSX for permission to use the Parcel for limited purposes. CSX responded

by asking Mr. Gilbreath to submit a land lease application to cover the requested uses and

the “~9 feet of the corner of the building . . . encroaching on CSX’s property.”

1

On page one we identified the acreage as being l.53 but here it is listed as 1.35. Although this

may appear to be a typographical error, it is not. The lot comprised 1.53 acres before the 1903 conveyance

to the railroad. Since that time, the acreage has been 1.35.

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While Mr. Gilbreath was preparing the lease application, Seller engaged real estate

broker Chad Grout to sell the Houston Station Parcel and two nearby parking lots owned

by Humphreys Street Investments, LLC. Mr. Grout then notified real estate investment

firm Rubicon Equities (“Buyer”) that the properties were for sale.2 Mr. Grout provided

Buyer with a copy of the 2006 Survey and disclosed that Seller was negotiating a “parking

lease with CSX for the north side of the building.”

After some negotiation, Buyer and Seller executed a purchase and sale agreement

(“the Purchase Agreement”) in December 2019. The Purchase Agreement was structured

to provide Buyer with a 45-day inspection period, during which Seller would obtain and

provide Buyer with a title insurance commitment, and Buyer would obtain a new survey

of the properties. Seller represented that it had “good and marketable title” to the Houston

Station Parcel and disclosed that it was “negotiating with CSX railroad . . . regarding the

right . . . to use certain property located in the CSX right-of-way for access, parking, a

ramp, loading area, and barriers.”

After signing the Purchase Agreement, Buyer deposited $1.5 million in earnest

money, and Seller provided Buyer with a title commitment from Fidelity National Title

Insurance Company along with copies of all title documents referenced there. But none of

the materials referenced the 1903 Deed or the encroachment. Buyer then had a new survey

prepared based on the title materials that Seller provided. Because those materials did not

reference the 1903 Deed, the resulting survey depicted the Houston Station Parcel in its

pre-1903, 1.53-acre size and did not reveal the encroachment:

2

The plaintiff-appellant in this case, Houston Humphreys LLC, is Buyer’s successor in interest.

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Both Buyer and Seller received a copy of the survey in January 2020. A few weeks later,

the inspection period closed, and Buyer deposited another $1.5 million in earnest money.

The next month, Mr. Gilbreath received a proposed land lease from CSX for

$550,000 per year to use the CSX Parcel for, among other things, “the location and

maintenance of a portion of [Seller]’s building.” Mr. Gilbreath sent the lease and a copy of

the 1903 Deed to Buyer. In his email, Mr. Gilbreath acknowledged that the lease terms

were “way out of bounds” and suggested that the parties negotiate for a lower price. Buyer,

however, was more concerned that a portion of the Houston Station Building encroached

on CSX’s property—a fact that Buyer claimed it was unaware of until then. Buyer rejected

the idea of leasing the CSX Parcel at any price because it could not “allow . . . anyone else

to own the land underneath the building.” In response, Mr. Gilbreath admitted that he failed

“to recognize the scope and importance” of the encroachment. Mr. Gilbreath explained that

Seller had no issues with lenders or title insurance underwriters in the past, and he

presumed the lease would resolve any encroachment issues.

A few days later, Buyer sent Seller a “Notice of New Objection” pursuant to § 3.2(a)

of the Purchase Agreement. Section 3.2(a) gave Buyer the right to object to newly

discovered title defects before closing:

In the event that at any time following delivery of the Title Commitment or

Survey described above, but prior to Closing, any changes . . . occur in the

Title Commitment or Survey, in addition to other remedies permitted

pursuant to this Agreement, then Buyer, in Buyer’s sole discretion and

judgment, may: (a) accept the Property with such defects, or (b) give written

notice to Seller and the Title Company of Buyer’s disapproval of any such

matters (a “New Objection”). If Seller does not remove or cure such New

Objection prior to the date of Closing, Buyer may at Buyer’s election either

(i) extend the Closing date by up to thirty (30) days during which time Seller

shall correct the New Objection if caused by or through the action or inaction

of Seller, and if not then corrected, or [sic] (ii) exercise Buyer’s remedies

provided in Section 10.1 herein.

Buyer demanded Seller cure the encroachment by acquiring title to the CSX Parcel

and extended the closing to July 6, 2020.

Meanwhile, several Houston Station tenants decided not to renew their leases due

to pandemic-related declines in business. Losing tenants presented a challenge for Seller

because §§ 4.1 and 4.2(a) of the Purchase Agreement obligated Seller to operate Houston

Station in the ordinary course of business but prohibited Seller from entering “into any

New Lease . . . without the prior written approval of Buyer.” Seller identified several

potential new tenants but could not get Buyer’s approval before executing the leases.

Afraid of losing its opportunity to rent the vacant spaces, Seller executed two new leases

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in mid-June 2020. When Seller notified Buyer about the leases, it also informed Buyer that

“multiple closing conditions”—including “the encroachment issue with CSX”—would not

be “satisfied or resolved prior to closing.” In response, Buyer sent Seller a notice of default

and demanded that Seller terminate the new leases and acquire title to the CSX Parcel.

Predictably, the parties did not close on July 6, 2020. That same day, Buyer sent

Seller a “Notice of Closing Date Extension” pursuant to § 6.2 of the Purchase Agreement,

which gave Seller the right to extend the closing by 60 days if Seller could not meet the

closing conditions:

In the event any of the foregoing conditions is not satisfied at the time

the Closing is scheduled to take place, Buyer may (i) extend the Closing by

not more than sixty (60) days to allow Seller to cure such breach of a

Condition to Close, and/or (ii) in addition to any other remedy available to it

hereunder, terminate this Agreement by written notice to Seller whereupon

the Earnest Money shall be promptly refunded to Buyer . . . .

Buyer also reasserted its demands that Seller obtain title to the CSX Parcel and terminate

the new leases. Seller, however, refused to terminate the leases and informed Buyer that

the encroachment issue would not be cured even with the extended deadline.

Even so, on July 24, 2020, Seller made one last attempt to reach an agreement with

CSX by offering to purchase the CSX Parcel for $375,000. In its offer, Seller explained

that buying the land “would be the simplest solution to removing the cloud” on its title.

CSX, however, was uninterested in selling the property. After CSX declined its offer, Seller

informed Buyer a third time that it could not recertify the representations and warranties in

the Purchase Agreement because it did not have “good and marketable” title to the Houston

Station Parcel.

On September 4, 2020, the rescheduled closing date, Buyer notified Seller that it

had three days to cure the defaults before Buyer pursued its remedies under § 10.1 of the

Purchase Agreement. Section 10.1 gave Buyer the right to obtain specific performance or

terminate the Purchase Agreement if Seller failed to sell the properties:

10.1. Seller’s Failure to Close/Buyer’s Remedies. If Seller fails or is

unable to sell the Property to Buyer, then, unless Seller cures such failure

within three (3) business days after Buyer provides written notice thereof,

Buyer, as its sole and exclusive remedies, may either: (i) obtain specific

performance of this Agreement, or (ii) terminate this Agreement without

further liability to the Seller, provided that Buyer shall have the right to

receive reimbursement of Buyer’s actual out-of-pocket costs and expenses in

conjunction with this Agreement, not to exceed One Hundred Thousand and

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No/100 Dollars ($100,000.00), in which event the Earnest Money shall also

be distributed to Buyer.

In response, Seller sent Buyer a notice claiming that Buyer was in default for failing

to purchase the properties and giving Buyer three days to cure the default before Seller

exercised its rights under § 10.2 of the Purchase Agreement. Section 10.2 gave Seller the

right to terminate the Agreement and keep the earnest money as liquidated damages if

Buyer defaulted by failing to purchase the properties:

10.2. Buyer’s Failure to Close/Seller’s Remedies. If Buyer fails to

purchase the Property and such failure constituted a default under this

Agreement, then, unless Buyer cures such failure within three (3) business

days after Seller gives it written notice thereof, Seller, as its sole and

exclusive remedy, may terminate this Agreement and receive the Earnest

Money as full and agreed upon liquidated damages.

Shortly after that, Buyer commenced this action by filing a complaint for

reformation of the Purchase Agreement, specific performance, and damages against Seller,

Mr. Gilbreath, and John Does 1–3 (collectively, “Defendants”). After Buyer filed its

complaint, Seller notified Buyer that it was terminating the Purchase Agreement and

retaining the $3 million in earnest money as liquidated damages.

II. TRIAL COURT PROCEEDINGS

Buyer asserted six claims against Defendants, only four of which are at issue on

appeal: (1) reformation of the Purchase Agreement based on fraud; (2) specific

performance of the reformed Purchase Agreement; (3) breach of contract; and (4)

fraudulent concealment.3 In short, Buyer alleged that Defendants fraudulently induced

Buyer to enter the Purchase Agreement by misrepresenting and concealing the actual size

of the Houston Station Parcel and misrepresenting the quality of its title, that it had good

and marketable title. Thus, Buyer asserted that it was entitled to an abatement of the

purchase price or an award of damages to reflect the smaller parcel size and the legal risks

associated with the encroachment. Buyer also sought an award of damages to compensate

for the allegedly inferior leases that Seller entered into without Buyer’s permission.

Defendants responded by moving for summary judgment on all claims. Defendants

argued that they were entitled to summary judgment on Buyer’s fraud claims because the

3

Buyer also asserted a claim against Seller for injunctive relief and a claim against Gordon

Gilbreath and John Does 1–3 for violation of the Tennessee Consumer Protection Act (“TCPA”). The trial

court granted summary judgment to Seller on these claims, and Buyer has not appealed that part of the

court’s judgment.

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actual boundary line and encroachment were disclosed on the 2006 Survey that Mr. Grout

provided to Buyer in October 2019. Defendants also asserted that Buyer had constructive

notice of the boundary line because the 1903 Deed was a public record. Thus, Defendants

asserted that Buyer was not entitled to an abatement of the purchase price or damages. As

for Buyer’s claims for breach of contract and specific performance, Seller asserted that it

was entitled to summary judgment because the Purchase Agreement terminated after Buyer

failed to close. Defendants also asked the court to release the earnest money to Seller and

award reasonable attorneys’ fees. Buyer opposed the motion, arguing that it had no

constructive notice and that there were multiple triable issues preventing summary

judgment.

Following a hearing, the trial court granted Defendants’ motion for summary

judgment, awarded the earnest money to Seller as liquidated damages, and awarded

$350,000 in attorneys’ fees and costs to Seller as the prevailing party. The court found that

Buyer had constructive notice of the actual boundary line, the encroachment, and the 1903

Deed, and that Seller “was capable of conveying good and marketable” title to “the

Property as defined in the Agreement,” being “the land that ends where CSX’s property

begins.” For these reasons, the court concluded that Defendants were entitled to summary

judgment on Buyer’s claims for reformation and fraudulent concealment. The court also

found that Seller was “ready, willing and able to convey the Property, as defined in the

Agreement” and that Seller’s termination of the Purchase Agreement was valid. Thus, the

court reasoned that Buyer could not suffer damages from Seller’s alleged breaches of the

contract, and it found Seller was entitled to the earnest money as liquidated damages.

Because Defendants were the prevailing party, the court awarded them $350,000 in

attorneys’ fees and costs under the Purchase Agreement.

This appeal followed.

ISSUES

Buyer raises four issues on appeal:

1. Did the trial court err in concluding, as a matter of law, that Seller had

not actually agreed to sell all of Houston Station to Buyer and therefore

was entitled to summary judgment on the Buyer’s contract claims?

2. Given that Tennessee courts have long held that constructive notice is not

a defense against fraud, did the trial court err in granting summary

judgment on Buyer’s fraud-based claims on the theory that Buyer had

constructive notice of the true boundary line of the Houston Street parcel?

3. Is there a genuine issue of material fact precluding summary judgment on

Buyer’s fraud-based claims regarding whether Seller disclosed the true

boundary line when it made available an outdated, inaccurate survey

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completed in 2006 that, according to unrebutted expert testimony, no

reasonable buyer would rely on?

4. Did the trial court err in awarding Buyer’s deposit to Seller, even though

Seller had (a) asserted no claim to the deposit and (b) by its own

admission, not satisfied the closing conditions in the parties’ agreement

that are a prerequisite for the Buyer’s forfeiture of the deposit?

Seller states the issues on appeal as follows:

1. Are Buyer’s new arguments on appeal waived?

2. Did the trial court correctly rule that Buyer’s fraud claims fail as a matter

of law and that Buyer is not entitled to reformation of the contract?

2. Did the trial court correctly grant summary judgment on Buyer’s breach-

of-contract claims?

3. Are Buyer’s objections to the trial court’s award of earnest money

waived, meritless, or both?

4. Did the trial court correctly award attorneys’ fees to Seller as the

prevailing party, and is Seller entitled to its attorneys’ fees on appeal?

STANDARD OF REVIEW

We review a trial court’s grant of summary judgment de novo without a presumption

of correctness. See Rye v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235, 250

(Tenn. 2015). Accordingly, this court must make a fresh determination of whether the

requirements of Tennessee Rule of Civil Procedure 56 have been satisfied. Id. In so doing,

we consider the evidence in the light most favorable to the nonmoving party and draw all

reasonable inferences in that party’s favor. Godfrey v. Ruiz, 90 S.W.3d 692, 695 (Tenn.

2002).

Courts should grant summary judgment when “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. When the party moving for summary

judgment does not bear the burden of proof at trial, as is the case here, it “may satisfy its

burden of production either (1) by affirmatively negating an essential element of the

nonmoving party’s claim or (2) by demonstrating that the nonmoving party’s evidence at

the summary judgment stage is insufficient to establish the nonmoving party’s claim or

defense.” Rye, 477 S.W.3d at 264.

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When a party moves for summary judgment and supports the motion as required by

Tennessee Rule of Civil Procedure 56, the nonmoving party may not rest on the allegations

or denials in its pleadings. Id. at 265. Instead, the nonmoving party must respond with

specific facts showing there is a genuine issue for trial. Id. A fact is material “if it must be

decided in order to resolve the substantive claim or defense at which the motion is

directed.” Byrd v. Hall, 847 S.W.2d 208, 215 (Tenn. 1993). A “genuine issue” exists if “a

reasonable jury could legitimately resolve that fact in favor of one side or the other.” Id.

ANALYSIS

I. CLAIMS FOR REFORMATION AND FRAUDULENT CONCEALMENT

Buyer contends that the trial court erred in granting summary judgment on its claims

sounding in fraud because there is a genuine issue of material fact as to whether the 1903

Deed and the 2006 Survey constituted actual or constructive notice of Seller not having the

right to use all the land under the Houston Station Building.4 We agree.

To establish fraudulent concealment, a plaintiff must prove that “the defendant ha[d]

a duty to disclose a known fact, the defendant faile[d] to disclose that fact, and the plaintiff

reasonably relie[d] on the resulting misrepresentation, which cause[d] injury.” Archer,

2020 WL 6075705, at *6 (citations omitted). “[A] seller of real property has a duty to

disclose ‘a fact of controlling importance in determining the desirability and value of that

[real property].’” Homestead Grp., LLC v. Bank of Tennessee, 307 S.W.3d 746, 752 (Tenn.

Ct. App. 2009) (quoting Simmons v. Evans, 206 S.W.2d 295, 296 (Tenn. 1947)). That said,

there is no duty to disclose a fact “where ordinary diligence would have revealed the

undisclosed fact.” Odom v. Oliver, 310 S.W.3d 344, 350 (Tenn. Ct. App. 2009) (citing

Simmons, 206 S.W.2d at 296; Lonning v. Jim Walter Homes, Inc., 725 S.W.2d 682, 684

(Tenn. Ct. App. 1986)).

4

Buyer also contends that the doctrine of constructive notice is not a defense to fraud under the

circumstances of this case. Defendants argue that Buyer waived this argument by not raising it in the trial

court. We agree. “Constructive notice” refers to “information or knowledge of a fact imputed by law to a

person . . . because he could have discovered the fact by proper diligence.” Hawks v. City of Westmoreland,

960 S.W.2d 10, 15 (Tenn. 1997) (quoting Kirby v. Macon Cnty., 892 S.W.2d 403, 409 (Tenn. 1994)).

Generally, plaintiffs “cannot recover on a claim of misrepresentation or concealment when the plaintiff has

constructive knowledge of the material fact at issue.” Archer v. The Home Team, Inc., No. M2019-01898-

COA-R3-CV, 2020 WL 6075705, at *7 (Tenn. Ct. App. Oct. 15, 2020) (citing Winstead v. First Tennessee

Bank N.A., Memphis, 709 S.W.2d 627, 633 (Tenn. Ct. App. 1986)). There are exceptions to this rule, such

as when the defendant’s representations were “calculated to lull the suspicions of a careful man into a

complete reliance” or when the defendant prevented or hindered the plaintiff’s efforts to investigate and

discover the truth. Id. (quoting 92 C.J.S. Vendor and Purchaser § 68). In the trial court, Buyer disputed

whether the 1903 Deed was discoverable through proper diligence, but Buyer did not argue that any

exception to the general rule applied. Thus, the issue is waived.

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Generally, whether a fact would have been discoverable in the exercise of ordinary

diligence is a question of fact. See id. at 352 (finding a factual dispute regarding whether

the buyers could have discovered a defect in the exercise of ordinary diligence). Publicly

recorded information, however, is “discoverable through ordinary diligence” as a matter of

law. See Archer, 2020 WL 6075705, at *7 (citing PNC Multifamily Cap. Inst’l Fund XXVI

Ltd. P’ship v. Bluff City Cmty. Dev. Corp., 387 S.W.3d 525, 550 (Tenn. Ct. App. 2012);

Trent v. Mountain Com. Bank, 606 S.W.3d 258, 265 (Tenn. 2020)); see also Tenn. Code

Ann. § 66-26-102 (providing that all recorded instruments such as deeds and judgments

“shall be notice to all the world from the time they are noted for registration, . . . and shall

take effect from such time.”).

It is undisputed that the 1903 Deed was registered with the Davidson County

Register’s Office. It is also undisputed that Seller gave Buyer a copy of the 2006 Survey,

which referenced the 1903 Deed by book and page number. The 1903 Deed shows that a

13-foot strip of the Houston Station Parcel bordering the railway’s right-of-way was

conveyed to CSX’s predecessor. Thus, as a matter of law, Buyer had constructive notice

of the facts contained in the 1903 Deed.

As such, we agree with the trial court that Buyer had constructive notice that CSX

owned a strip of land between the Houston Station Parcel and the railway. However, the

1903 Deed did not provide Buyer with constructive notice that the Houston Station

Building encroached on CSX’s property because the 1903 Deed did not show or describe

the Building’s location.

To establish that Buyer had notice of the encroachment, Defendants relied on the

2006 Survey. It was undisputed that Mr. Grout gave Buyer a copy of the Survey in October

2019 and that the Survey showed the southeast corner of the Houston Station Building

encroaching on the CSX Parcel. Thus, we agree with the trial court’s conclusion that Buyer

had constructive notice that the Houston Station Building encroached on the CSX Parcel.

That said, it was also undisputed that the 2006 Survey showed a 13-foot “use

easement” covering the encroachment and that Defendants themselves mistakenly believed

they had a right to use the easement for at least 12 years.5 For this reason, viewing these

5

Defendants contend that Buyer waived any argument concerning the use easement because

“Buyer neither pled in its complaint nor argued to the trial court that it was defrauded by an alleged false

disclosure of a use easement.” This argument is misplaced. As Defendants correctly point out, Buyer does

not contend that it was defrauded by Defendants’ failure to disclose the use easement; Buyer contends that

it was defrauded by Defendants’ failure to disclose the unauthorized encroachment of the Houston Station

Building on the CSX Parcel. The use easement rebuts Defendants’ contention that the 2006 Survey gave

Buyer actual or constructive notice of this fact.

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facts in a light most favorable to Buyer, we disagree with the trial court’s conclusion that

it is undisputed Buyer had actual or constructive notice of the encroachment being

unauthorized. To the contrary, we find that it is disputed whether Buyer had sufficient

notice that the encroachment was unauthorized by CSX. We also find this disputed fact

material because the unauthorized encroachment of a building on adjoining property

exposes the landowner to liability. See Cross v. McCurry, 859 S.W.2d 349, 354 (Tenn. Ct.

App. 1993) (holding that landowner was entitled to damages when neighboring building

encroached on property). Thus, “[s]uch an encroachment makes the title of the purchaser

unmarketable because the adjoining owner may compel the removal of the encroachment

or sue for damages caused by it.” 77 Am. Jur. 2d Vendor and Purchaser § 164; see also

Rogers v. Roop, 92 S.W.2d 423, 429 (Tenn. Ct. App. 1935) (defining “merchantable” or

“marketable” title as “title free from serious defects, evidenced by public record and in no

way dependent upon parol evidence, and that nothing appears casting a cloud upon it from

which litigation can arise”).

Buyer seeks reformation of the Purchase Agreement and damages for Defendants’

alleged misrepresentation of the Houston Station Parcel’s size and the quality of its title,

i.e., that Seller had “good and marketable” title to the property. In particular, Buyer sought

an abatement of the purchase price to account for the legal risks associated with the

unauthorized encroachment. It was undisputed that Seller knew the encroachment was an

issue with CSX by early 2019 when CSX demanded Seller submit a land lease application

to cover various uses, including the approximately “9 feet of the corner of the

building . . . encroaching on CSX’s property.” Yet six months later, Seller negotiated a

contract to sell the Houston Station Parcel based on representations that it owned “good

and marketable title.” Seller later admitted that it could not live up to this representation

due to the encroachment. Neither the 2006 Survey nor the 1903 Deed establishes that Buyer

knew or should have known that the encroachment clouded the title to the Houston Station

Parcel.

For these reasons, Defendants are not entitled to judgment as a matter of law on

Buyer’s claims for reformation and fraudulent concealment.

II. CONTRACT-BASED CLAIMS

Buyer contends that the trial court erred when it granted summary judgment to Seller

on its contract-based claims for several reasons. As stated in its brief,

The Seller admitted, among other things, that it could not live up to its end

of the bargain—specifically, that it could not convey all 1.53 acres of

Houston Station because CSX owned [a portion] of it. It had also entered into

dubious leases without the Buyer’s approval, in violation of the parties’

agreement. The Seller breached the agreement in other ways, too, including

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by not disclosing CSX’s threat of a trespass suit. All of these contractual

breaches were either admitted or are beyond dispute, which means that the

Seller was in no position to close on the deal. The trial court nonetheless

declared that the Buyer had defaulted by not going through with the purchase

and that the agreement had been terminated. . . . That conclusion is entirely

divorced from the evidentiary record.

Buyer also contends that Seller had no right to terminate the contract or keep the

earnest money because Buyer’s failure to close was not a default under the Purchase

Agreement. Buyer asserts that its obligation to close was conditioned on, among other

things, Seller not being in default and Seller’s representations being true, accurate, and

complete. Because Seller admitted to breaching § 4.2 of the Agreement, Buyer contends

that Seller did not meet the closing conditions and thus Buyer had no obligation to close.6

For its part, Seller argues that Buyer’s failure to close was a default because Buyer

opted to proceed to closing rather than terminating the Purchase Agreement after Seller

admitted that it could not meet the closing conditions.

Resolving these issues requires interpretation of the Purchase Agreement. We

review a trial court’s interpretation of a contract de novo without a presumption of

correctness. See State ex rel. Pope v. U.S. Fire Ins. Co., 145 S.W.3d 529, 533 (Tenn. 2004).

The trial court based its decision to grant summary judgment on Seller’s purported

termination of the Purchase Agreement under § 10.2. This section gave Seller the right to

terminate the contract and retain the earnest money as liquidated damages if Buyer failed

to close and its failure to close constituted a default:

10.2. Buyer’s Failure to Close/Seller’s Remedies. If Buyer fails to

purchase the Property and such failure constituted a default under this

Agreement, then, unless Buyer cures such failure within three (3) business

days after Seller gives it written notice thereof, Seller, as its sole and

6

Buyer also contends that summary judgment and the award of damages was not appropriate

because “there was at least a triable question whether the Seller had breached the agreement by failing to

disclose a threat of legal action by CSX” and because Seller’s request for an award of the earnest money

was procedurally improper. Defendants argue that Buyer waived these arguments by not making them in

the trial court. We agree. Arguments not first raised in the trial court are waived on appeal. Barnes v. Barnes,

193 S.W.3d 495, 501 (Tenn. 2006). Additionally, “[a] skeletal argument that is really nothing more than an

assertion will not properly preserve a claim . . . .” Newcomb v. Kohler Co., 222 S.W.3d 368, 400 (Tenn. Ct.

App. 2006) (citing United States v. Dunkel, 927 F.2d 942, 956 (7th Cir. 1991)). Buyer did not oppose

Seller’s claim for liquidated damages on procedural grounds in the trial court. Further, Buyer’s complaint

did not allege that Seller breached its obligation to disclose threatened litigation, and Buyer made only a

passing reference to this allegation in its oral argument to the trial court.

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exclusive remedy, may terminate this Agreement and receive the Earnest

Money as full and agreed upon liquidated damages.

At the same time, as Buyer correctly points out, § 6.2 conditioned Buyer’s

obligation to close on, among other things, “Seller not being in default under [the]

Agreement” and “all of the representations and warranties made by Seller . . . being true,

accurate and complete.” But Seller relies on additional language in § 6.2 that gives Buyer

the right to extend the closing or terminate the contract:

In the event any of the foregoing conditions is not satisfied at the time

the Closing is scheduled to take place, Buyer may (i) extend the Closing by

not more than sixty (60) days to allow Seller to cure such breach of a

Condition to Close, and/or (ii) in addition to any other remedy available to it

hereunder, terminate this Agreement by written notice to Seller whereupon

the Earnest Money shall be promptly refunded to Buyer and . . . then Seller

shall reimburse Buyer for its actual and documented out-of-pocket costs and

expenses not to exceed $100,000.

Buyer alleges that Seller breached the Purchase Agreement by “failing to own good

and marketable fee simple title to the Property.” The trial court found it undisputed that

“Seller[] owned good and marketable fee simple title to the Property as defined in the

Agreement,” which the court construed as “land that ends where the CSX Parcel begins.”

Buyer contends this interpretation is incorrect because Seller agreed to sell “the full

property and building, including the portion owned by CSX.”7

We agree with the trial court’s conclusion that Seller owned fee simple title to “the

Property” as defined in the Purchase Agreement. The Purchase Agreement, through a series

of defined terms, identifies “the Property” as including the “Houston Station Parcel,” which

the Agreement defines as an “approximately 1.53-acre parcel of land in Nashville,

Davidson County, Tennessee with an address of 434 Houston Street and a Tax Parcel

Identification of 10503019800 as more particularly described on Exhibit A-1.” Exhibit A-

1 “more particularly” describes the Houston Station Parcel as follows:

Land in Davidson County, Tennessee, being a triangular shape lot in South

Nashville, fronting on the west side of the N.C. & St. L. Railroad, and

being bounded on its westerly side by Brown Street, and on its southerly side

by Houston Street; said lot has a frontage on Brown Street of 280 feet, and

7

In the alternative, Buyer contends that the Purchase Agreement is ambiguous as to what the parties

agreed to buy and sell. Seller argues that Buyer waived this argument by failing to raise it in the trial court.

We agree. Buyer did not argue that the Purchase Agreement was ambiguous in the trial court and, as such,

waived the issue on appeal. See Barnes, 193 S.W.3d at 501.

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on Houston Street of 512 feet; said lot being a part of the Humphrey Houston

and Martin Plan of lots as registered in Book 36, page 117, in the Register’s

Office for Davidson County, Tennessee.

. . . .

Being the same property conveyed to Houston Street Partners, LLC, a

Tennessee limited liability company, by Thomas T. Pennington and Jeffrey

A. Kay, Co-Trustees of the Rich Trust by Special Warranty Deed dated

November 23, 2005, of record at Instrument No. 20051128-0143055,

Register’s Office for Davidson County, Tennessee.

(Emphasis added). Thus, the Purchase Agreement obligated Seller to convey what it

received in 2005: the triangular parcel of land bounded by Brown Street, Houston Street,

and the railroad. It is undisputed that Seller still owned all the property it received in 2005.

While we agree that Seller owned fee simple title to “the Property,” we respectfully

disagree with the trial court’s conclusion that Seller owned “good and marketable fee

simple title to the Property.” As discussed, the encroachment of a building onto

neighboring land “makes the title of the purchaser unmarketable because the adjoining

owner may compel the removal of the encroachment or sue for damages caused by it.” 77

Am. Jur. 2d Vendor and Purchaser § 164; see also Rogers, 92 S.W.2d at 429. It is

undisputed that the Houston Station Building’s encroachment onto CSX’s property created

a cloud on Seller’s title.

Thus, it is undisputed that Seller could not satisfy the closing conditions at the time

of the September 4, 2020 closing date. Seller told Buyer that it could not recertify its

representations and warranties because it did not have “good and marketable” title to the

Houston Station Parcel. Additionally, Seller does not dispute that it breached the Purchase

Agreement by executing two new leases without obtaining Buyer’s consent. Nevertheless,

Seller contends that Buyer’s only options were to extend the closing date, terminate the

contract, or proceed with the closing. Because Buyer did not extend the closing date or

terminate the contract, Seller argues that Buyer breached its obligation to close. We

disagree.

Section 6.2 expressly conditioned Buyer’s obligation to close on Seller meeting the

closing conditions. We do not interpret Buyer’s right to extend closing or terminate the

Agreement as abrogating this. See Teter v. Republic Parking Sys., Inc., 181 S.W.3d 330,

342 (Tenn. 2005) (recognizing that the provisions in a contract should be interpreted

harmoniously with each other when possible). Simply put, if Seller did not meet the closing

conditions by the closing date, Buyer was not obligated to close. In addition, Buyer had the

right to extend the closing, terminate the Agreement, or exercise “any other remedy

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available” under the Purchase Agreement. Relevant here, § 10.1 gave Buyer the right to

seek specific performance.

Thus, when Seller had not satisfied the closing conditions by the September 4, 2020

closing date, Buyer had no obligation to close, and it had the right to seek specific

performance, which it did. Because Buyer had no obligation to close, Buyer’s failure to

close was not a default. Therefore, Seller had no right to terminate the Purchase Agreement

and receive the $3 million deposit as liquidated damages.

For these reasons, Seller is not entitled to judgment as a matter of law on Buyer’s

contract-based claims. This includes the trial court’s ruling that the Purchase Agreement

terminated upon Buyer’s failure to close on September 4, 2020, and its ruling that Seller

was entitled to retain the earnest money as liquidated damages. Accordingly, both of the

above rulings are vacated.

The above ruling also requires that we vacate the ruling that Buyer could not

establish damages based on Seller’s admitted breach of § 4.2 of the Purchase Agreement

by entering into two new leases after the expiration of the inspection period without

Buyer’s approval.

III. ATTORNEYS’ FEES

Buyer contends this court should also vacate the award of attorneys’ fees and costs

because Defendants are no longer the “prevailing parties.” Section 11.13 of the Purchase

Agreement entitles the “prevailing party” in any action related to the Purchase Agreement

to an award of reasonable costs, expenses, and fees. Because we have reversed the trial

court’s grant of summary judgment in favor of Seller on the breach of contract claims,

Seller is not the prevailing party. Therefore, Seller is not entitled to attorneys’ fees and

expenses at this stage. Accordingly, we vacate this portion of the trial court’s judgment.8

IN CONCLUSION

Based on the above, we reverse the trial court’s judgment concerning Buyer’s claims

for reformation and fraudulent concealment, as well as Buyer’s contract-based claims, and

we vacate its award concerning the earnest money deposit and attorneys’ fees and expenses

and remand for further proceedings consistent with this opinion. Costs of appeal are

8

Because Buyer did not appeal the summary judgment on its TCPA claim, Defendants contend

that the award of attorney’s fees should be affirmed in part under Tennessee Code Annotated § 47-18-

109(e)(2). We decline to do so. The trial court did not address Buyer’s request under § 47-18-109(e)(2),

and Buyer’s decision to abandon its TCPA claim on appeal does not automatically entitle Defendants to an

award under that statute.

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assessed against the appellees, Houston Street Partners, LLC; Humphreys Street

Investments, LLC; and Gordon Gilbreath, jointly and severally.

________________________________

FRANK G. CLEMENT JR., P.J., M.S.

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