Tennessee Business Litigation Law Blog

John Day has posted on Day on Torts about a new business litigation case from the Tennessee Supreme Court. In Cambio Health Solutions, LLC v. Reardon, the Supreme Court held that a parent corporation can be liable for intentional interference with a contractual relationship between a partially owned subsidiary and a third party. The key to the case is that the contracting party was a partially owned subsidiary. Under a prior Tennessee Supreme Court holding, a “parent corporation has a privilege pursuant to which it can cause a wholly-owned subsidiary to breach a contract without becoming liable for tortiously interfering with a contractual relationship.”

You're sued for breach of an oral contract.  You get all the way to a bench trial, call witnesses, and, in the end, thankfully get a ruling in your favor.  Moreover, you didn't even incur the cost of having to transcribe the hearing.

Low and behold, on appeal, the parties suddenly have different recollections regarding what the Court actually held.  The Court of Appeals can't discern what the Court's findings were because there is no record of the hearing.  The result...your judgment is vacated and the case is remanded.

The moral of the story:  If you want a ruling to hold up, there better be some record of the findings of fact and law that supported the ruling.  Relying on the recollection of the attorneys and parties involved always seems to prove problematic for some reason...

A link to the opinion in Martin v. Long is available here.

Every attorney, if only from their law school contracts class, is intimately familiar with the statute of frauds.  This well-known doctrine specifies certain types of transactions, most notably contracts for the sale of real property, that must be reduced to writing and signed in order to be valid.  In Tennessee, the statute of frauds is codified at T.C.A. 29-2-101 which, among other things, states that: 

No action shall be brought…upon any contract for the sale of lands…unless the the promise or agreement, upon which such action shall be brought, or some    memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith. 

Interestingly, despite the frequent application of the statute of frauds, there has long remained a debate about who the “party to be charged” actually is.  There was a well established line of Tennessee case law dating back to 1857 holding that “the party to be charged” referred to the party who was the owner of land.  However, this line of case law had recently been questioned and was finally overturned by the Tennessee Supreme Court in Blair v. Brownson, 197 S.W.3d 681 (Tenn. July 11, 2006).  There, the Court held that “the party to charged,” as described in the statute of frauds, refers to the party against whom enforcement of the contract is sought.  The Court reasoned that the policy rational for the statute of frauds in 1857 may well have been to protect and give preference to landowners in contracts for the sale of land, but that this preference was not appropriate in today’s society where both parties to the contract should be protected equally.

The Court noted that Tennessee Legislature also  joined in this view by amending T.C.A. 29-2-101 during the pendency of the case to specifically state that the “party to be charged is the party against whom enforcement of the contact is sought.”

Read the full opinion here.

The recent case of In re Estate of Drewry E. Haskins, Jr. from the Eastern Section of the Court of Appeals deals with the requirements for a verbal contract under Tennessee law, but the interesting part of the case focuses on the credibility of witnesses. In Haskins, the case was tried before a special master in 1999, with the special master finding the plaintiff failed to prove the existence of an oral contract.  More than four years later, and after being instructed to do so by the Chancellor, the special master amended his report to consider the testimony of several additional witnesses. The master found the testimony of each of these witnesses “not to be credible in this action as a result of her affect and her interest," and again found no oral contract existed. 

The plaintiff appealled, arguing that “the Special Master made a determination of credibility of multiple witnesses...fifty-six months after hearing."  The plaintiff further argued that "no finder of fact can make any appropriate finding of credibility more than four and one-half years after the hearing in
question.” The Court of Appeals rejected the plaintiff's argument outright, noting that credibility is determined during the trial even if recorded in an order or report years later.  Moreover, even with the passage of time the trial court remains better equipped to judge the credibility of witnesses than an appellate court reviewing the transcript alone.

One final important point made by the Court of Appeals is that a trial court need not accept as true a witness's testimony merely because it is not directly contradicted, impeached, or discredited. In other words, a witness's testimony that the sky is yellow and the sun is blue need not be accepted as fact merely because it is not attacked on cross-examination. 

Last week we highlighted the specific performance judgment granted to the owners of a local country-western bar involving a contractual right of first refusal.  In that case, the owners of the bar successfully brought suit against their lessor when the lessor attempted to sell the property to a third party without recognizing the first refusal clause in the lease agreement.

The Court of Appeals has just affirmed another similar verdict – this time involving a purchase option on a lot occupied by a car dealership.  The owners of the dealership entered into a lease agreement for the property which contained a clause that allowed the owners the option of purchasing the property at the conclusion of 5 years.  The owners gave notice that they intended to purchase the property and alertered the lessor of the date they intended to close.  The lessor did not agree with the closing date or the valuation placed the property and refused to close.  The owners filed suit and were awarded specific performance but the trial court but, on appeal, the Court reversed the summary judgment and held, among other things, that the lessor had the right to a “reasonable time” in which to close.

On remand, the parties dispute continued over the valuation of the property.  At trial, the Court chose a “reasonable” closing date and set a valuation on the property using an average of the appraisals obtaining by the parties.  The Court found that the Plaintiffs did not commit anticipatory breach of the lease agreement by attempting to force an earlier closing date and, accordingly, ordered specific performance regarding the purchase option held by the owners of the car dealership.  This time the judgment was affirmed on appeal.

As these recent decisions continue to make clear, contractual provisions regarding the right to alienate real property (such as purchase options, rights of first refusal, etc…) will be enforced by Tennessee Courts by way of specific performance.

The case is Harper-Wittbrodt Automotive Group, LLC v. Teague, et al.

The property housing Roberts Western World, a well known country western-bar on Nashville’s Broadway Strip, was recently sold by its owner.  Unfortunately, it was sold to a third-party despite the fact that the owners of Roberts, who had previously been leasing the premises, had contracted for a right of first refusal on the property.  Accordingly, the owners of Roberts’ filed suit seeking specific performance of their right of first refusal.  The Court of Appeals found that Plaintiffs’ had not, as the defendants claimed,  waived their right to enforce the contract provision.  Additionally, the Court noted that “specific performance is regarded as appropriate when dealing with contracts for the conveyance of real property because real property is unique, and more often than not, an award of damages is simply not an adequate remedy.” That being the case, the Court ordered specific performance and it appears the owners of Roberts Western World will be able to buy out the property on which they now sit.

The case is McCullough v. Silverfield, 2006 WL 2614311 (Tenn. Ct. App. 2006).  Read the full opinion here.

The Internal Affairs Doctrine is a choice of law principle that has long been recognized in Tennessee. The doctrine holds that matters involving the internal affairs of a foreign corporation should be deemed substantive in nature and should therefore be resolved in accordance with the law of the state of incorporation.  

However, what it is the role of the doctrine when the litigation involves a contract claim and the contract specifically provides for application of Tennessee law? In particular, when the plaintiff makes an alter ego allegation against the foreign parent of the alleged breaching party, what law governs the alter ego allegation?

This was the specific question addressed by the Middle District of Tennessee, and later by the 6^th Circuit Court of Appeals, in Southeast Texas Inns v. Prime Hospitality Corp. The Middle District held that while Tennessee law would apply to the breach of contract claim pursuant to the choice of law clause, Delaware law would govern the alter ego allegation, despite the choice of law provision, since the allegation concerned the internal affairs of a foreign corporation. When this issue was appealed to the 6^th Circuit, a majority of the Court concluded that the issue was functionally moot in that Tennessee and Delaware law were consistent with regard to the elements necessary to pierce the corporate veil under an alter ego theory. Accordingly, the Court did not rule on whether the Internal Affairs Doctrine had been properly applied by the District Court.

While the issue was not reached by the Sixth Circuit, this case nonetheless highlights an important point. Choice of law clauses, even if enforceable, may not govern the disposition of all legal issues in a contract case. As underscored by the forgoing, attorneys should not simply assume that such clauses are dispositive. 

Read the full opinion here.

Oral contracts are always a dicey business, and establishing their existence and enforceability almost always turns on the testimony and credibility of the party seeking to enforce the contract.  However, while establishing such a contract will almost always be a fact-specific inquiry, Tennessee Courts have provided a basic legal framework for engaging in this inquiry.  A good summary of this framework was recently provided by the Court of Appeals in Humphrey v. TomKats, Inc.: 

An oral agreement is enforceable, but the party seeking to enforce it must prove (1) mutual assent to the contract's terms and (2) that the terms are sufficiently definite to be enforceable.

 

A manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.

 

The terms of a contract are reasonably certain if they provide a basis for determining the

existence of a breach and for giving an appropriate remedy. 

 

The fact that one or more terms of a proposed bargain are left open or uncertain may show that a manifestation of intention is not intended to be understood as an offer or as an acceptance.

Accordingly, while the existence and enforceability of an oral contract will usually boil down to issues of credibility, the party seeking to enforce the contract must remember that, in some form or fashion, they have an affirmative and definite obligation to establish (1) mutual assent and (2) sufficiently definite terms.

The recent opinion of the Middle Section Court of Appeals in Lee's Home Center v. Morris is a good primer on the implied warranty of fitness for a particular purpose. The Court starts out by succinctly stating the prima face case under Tennessee law for a breach of an implied warranty of fitness for a particular purpose:

To be successful with a Tenn. Code Ann. § 47-2-315 claim, the buyer must prove (1) that the seller was aware that the buyer had a particular purpose for which the goods were required, (2) that the seller knew that the buyer was relying on the seller’s skill or judgment to provide the buyer with goods that were fit for that particular purpose, and (3) that the buyer must have actually relied on the seller’s skill or judgment.

The Court goes on to analyze several aspects of the implied warranty, in part noting that: An implied warranty of fitness for a particular purpose may arise even when a seller is simply conveying information from a manufacturer. For example, such a warranty has been found when the seller advises the buyer of a product’s fitness for a particular purpose based upon information in the manufacturer’s catalogue, or when the seller vouches for a product’s fitness for a particular purpose based upon advice obtained from the manufacturer.

In the end, the Court of Appeals reversed a summary judgment for the seller, finding a dispute under the facts as to whether the buyer relied on the seller in the case.

A recent opinion from the 6th Circuit Court of Appeals nicely outlines the law of accord and satisfaction in Tennessee. The case, Scipio v. Sony Music Entertainment, Inc., 2006 WL 527062
(6th Cir.) involved claims of copyright infringement brought by former members of a british funk group against members of the contemporary group, "The Fugees." In analyzing whether a proposed agreement between the parties constituted an accord and satisfaction under Tennessee law, the Court explained this State's version of the doctrine as follows:

The Court of Appeals' recent decision in Maynard M. Gordon v. Horizon Communications, Inc. is long and fact-intensive, but bares at least one important point: If you want an implied contract, ask for it.

The short version of the case is that the plaintiff had a contract to write articles and perform various other duties for the defendant publisher. The plaintiff wrote articles, but the articles were shorter than expected, and the plaintiff did not perform the miscellaneous other duties under the contract. The defendant used some of the articles that the plaintiff wrote, but did not pay the plaintiff. The plaintiff sued for breach of a written contract. The Court of Appeals affirmed the trial court's decision that the plaintiff had materially breached first, that the defendant did not waive any of those breaches, and that the defendant did not itself breach the written contract.

The Court of Appeals noted that the plaintiff was suing for breach of the written contract, not under a theory of implied contract or quantum meruit. Under an implied contract or quantum meruit theory, the plaintiff may have been entitled to reasonable pay for the work the plaintiff actually did - even if it was not the work agreed upon in the written contract. Since the plaintiff only asked for recovery under the written agreement, the plaintiff was not entitled to the reasonable value of the plaintiff's services.

A recent decision from the Superior Court of New Jersey highlights the neccesity of ascertaining and memorializing party intent when drafting contract terms. In Toys.R.Us.com LLC v. Amazon.com, the parties battled over the meaning of the "exclusivity" provision in their strategic alliance agreement. Toys.R.Us argued that, in exchange for 50 million dollars a year, it was bargaining for the exclusive right to sell toys and baby products on Amazon's website. Accordingly, when other retailers were allowed to sell these products by Amazon, Toys.R.Us filed suit.

Amazon responded that the "exclusivity" provision in the agreement was only intended to provide Toys.R.Us with the exclusive right to sell certain selected products.

Can a contract limit liability for fraud in the contract itself?

The Conglomerate Blog notes of a recent Delaware case deciding on a "non-reliance provision" in a contract. Briefly, a contract for the sale of a company included a provision that limited the seller's liability for any misrepresentation. The buyer later filed suit. The court held that it would be against public policy of the State of Delaware to enforce a non-reliance provision that protected a party who made misrepresentations with "an illicit state of mind."

The "illicit state of mind" language comes in because the misrepresentations at issue were in the purchased company's financial statements - which were prepared by a third-party. The court in the case ruled that the provision was ineffective if either: 1) the Seller knew that the Company's contractual representations and warranties were false; or 2) the Seller itself lied to the Buyer about a contractual representation and warranty. It looks like the court's holding, then, is limited to intentional misprepresentation, and does not extend to negligent misrepresentation.

The Delaware Corporate and Commercial Litigation blog posts about a recent Delaware contract dispute case. It's a lengthy opinion, but a reminder of the principle that:

Specific language in a contract controls over general language, and where specific and general provisions conflict, the specific provision ordinarily qualifies the meaning of the general one.

The Middle Section Court of Appeals issued a ruling in December that is a textbook lesson in the law of accord and satisfaction. An accord and satisfaction essentially means that the plaintiff and defendant have already agreed to settle their claims, and that the settlement has been paid off. The Court of Appeals set out the elements that must be proven to estabilsh an accord and satisfaction:

This includes the terms of the accord (the new agreement), satisfaction by performance or that the payment was offered on the condition that, if accepted, it would be in full settlement of the demand, and that the creditor understood the conditions of the tender or the circumstances under which it was made were such that he was bound to understand.

The case, LDI Design, LLC v. Glenn G. Dukes, illustrates the effect of having an accord and satisfaction as an affirmative defense. In the case, the defendant proved that the parties had, in fact, agreed to settle their differences. However, the defendant did not prove that the agreement was broad enough to cover all of the plaintiff's claims. The defendant lost the argument, then, because as an affirmative defense the burden of proving all of the elements (including the terms of the agreement) is on the defendant.

If you're dealing with an accord and satisfaction issue, this is a solid example of the rule. Like a lot of business deals, there were claims and counterclaims and third-party claims all mixed into this one. For simplicity, I've simply referred to them as the plaintiff and defendant, rather than diving into the procedural posture.

The opinion of the Middle Section Court of Appeals in Polygram Records, Inc. v. Legacy Entertainment Group, LLC, is a worthy read (and not only because of its connection to both Hank Williams and Hank Williams, Jr.). The case revolves around recordings of Hank Williams that were made to play on a "live" radio show. At the time Williams was on the radio show, MGM Records had an exclusive contract with Williams, and owned all rights to his recordings, records, and reproductions. The contract was for Williams's personal services "for the purpose of making phonograph records," and the contract prohibited Williams from performing "for the purpose of making phonograph records for any [other] person."

Forty-five years later, someone found the old Hank Williams radio show recordings and prepared to remaster and market them. MGM's successor filed suit to stop them, claiming MGM's exclusive rights. Both the trial and appellate courts ruled those rights were limited to "recordings made for the purpose of making phonograph records." Since the radio shows were only recorded to play on a live radio show, MGM has no rights to them.

A case to pull out when you have a case involving a contract that only covers actions performed with a particular purpose.

The Middle Section Court of Appeals this week restated that Tennessee does not recognize a duty to negotiate in good faith unless the parties expressly contract for one. In Barnes & Robinson Co., Inc. v. OneSource Facility Servs., Inc., the parties agreed they would negotiate for the buyer to purchase assets and franchises from the seller. The two sides also agreed that the buyer would pay $10,000 as a down payment at the outset of negotiating, and another $90,000 on signing of a definitive purchase agreement. The deal apparently fell through at some point, and the buyer sued for (among other things) the seller's breach of duty to negotiate in good faith. The trial court dismissed the claim, and the Court of Appeals affirmed, saying there was no express contractual agreement that negotiations would be conducted in good faith, so the seller had no affirmative duty to do so.

In a nutshell: in Tennessee, a "contract to make a contract" is not worth much unless it expressly states states that the parties will negotiate with each other in good faith.

Note my earlier post on this topic based on a similar ruling from the Eastern District Court of Appeals.

The Tennessee Court of Appeals' recent decision in Consumer Fin. Servs. (Mgmt.), Inc. v. Consumer Fin. Servs. Mgmt., L.L.C., notes a point of law from a 1947 Tennessee Supreme Court opinion, Simmons v. Evans. A seller generally has a duty to disclose material facts concerning the value of property that is known to the seller, and not reasonably discoverable by the buyer. In the Consumer Financial Services case, the Court of Appeals affirmed a finding of fraudulent inducement of contract, and one of the facts at issue was a failure to disclose tax return information based on this principle.

Many contracts today have contractual time limitations on the right to sue. Under Tenn. Code Ann. sec. 28-1-105(b), a plaintiff who files suit within the contractual period but whose case ends on something other than a final judgment (for example, a nonsuit or a judgment against the plaintiff on a procedural ground that is without prejudice), the plaintiff has one year to re-file.

The Tennessee Supreme Court ruled yesterday in a case about after-acquired evidence. The issue arises where a company breaches an employment contract by terminating an employee. After already breaching the contract, what happens if the company then finds a legitimate reason to terminate the employee? According to the Supreme Court in Teter v. Republic Parking System, Inc., the company can use the after-acquired evidence as a defense. The burden is on the company to prove:

(1) the employee was guilty of some misconduct of which the employer was unaware; (2) the misconduct would have justified discharge of the employee; and (3) had the employer known of the misconduct, the employer would have discharged the employee.

The Tennessee Supreme Court held that the defense must be proven by a preponderance of the evidence (rather than a higher clear and convincing standard).

Tennessee recognizes two distinct causes of action for a third parties' attempt to interfere in the relationship between a business and its clients. The first, Inducement of Breach of Contract, is a creature of statute. It applies where an individual induces the breach of an existing contract and subjects the liable party to treble damages. T.C.A. 47-50-109.

The second, Intentional Interference with Business Relationships, was recently recognized by the Tennessee Supreme Court. This tort applies where the plaintiff can show (1) there is an existing business relationship with a specific party or a prospective relationship with an identifiable class of persons, (2) the defendant has knowledge of that relationship and not simply an awareness of the plaintiff's business dealings with others in general, (3) the defendant's intent is to cause the breach or termination of the business relationship, (4) the defendant has an improper motive or utilized improper means, and (5) damages resulted from the tortious interference. Trau-Med of America Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 701 (Tenn. 2002).

One or both of these causes of action may be available to a company who suffers damages from tortious interference.

The Eleventh Circuit Court of Appeals recently allowed a claim for loss of future profits due to a breach of contract for the sale of goods. The Court remanded and instructed the district court to "determine, to a reasonable certainty," the profits that the plaintiff would have made from the re-sale of the goods. The Court suggested this could be accomplished by looking to the average profits made by other companies in the same industry selling the same goods (in this case, Microsoft software licenses). Then, the defendant could reduce the plaintiff's total award by proving that the plaintiff could have reasonably taken steps to cover its losses. The Court, then, treated the failure to cover or mitigate as an affirmative defense.

Read the opinion here.

Here's a great anecdote about the importance of discovering email evidence. The defendant had a "no shop" agreement in place that prohibited him from negotiating with anyone but the plaintiff until March 5, 2005. In April, the defendant sold to someone else, and the plaintiff sued to block the transfer. The defendant testified that he could not recall negotiating before March 7, 2005, and produced emails that seemed to confirm his testimony. Emails from the buyer, however, revealed discussions as early as 2004. Not surprisingly, the plaintiff's injunction was granted.

This is a perfect example of two things. First, emails are becoming more and more critical in business, and therefore in business litigation. Granted, this isn't a new phenomenon, but it's only getting more prevalent. Second, just because a party says it and produces supporting documents, that does not make it true. You have to be willing and able to dig to find what you are looking for, and must have the support of the liberal rules on discoverability to get it.

(Found via the Electronic Discovery and Evidence blog.)

There's an analysis of the business and legal ramifications of negotiating by email over at law.com. They point out the cultural losses of negotiating a deal from remote. That assumes that in-person communications by people from different cultural backgrounds go smoothly; basic social science tells us that is not always the case. On the other hand, anyone who has read an email and tried to figure out whether the author was being sarcastic can see another problem with negotiating by email: it loses the emphasis on key points. That may be the largest impact on litigating a dispute over a contract negotiated by email - barring industry standards or a prior course of conduct between the parties, any court can look to the emails to effectively look over the shoulders of the parties.

If you are seeking attorney's fees in a lawsuit, take a minute to look at the Fourth Circuit Court of Appeals' opinion in Carolina Power and Light Co. v. Dynegy Marketing and Trade. The Court sets out the circumstances when a trial court must rule on a claim for attorney's fees before a judgment becomes final. The gist is that if attorney's fees are part of the claim - such as a provision for legal costs in the event of a breach of contract - then the trial court must rule on the fee issue before the rest of the judgment becomes final. On the other hand, a discretionary request for attorney's fees under statute is not a part of the main case, and the trial court can enter a judgment on the case while deferring the fee issue.

The important part for lawyers is to know when to insist that the attorney's fee issue be resolved so that the time to appeal begins to run, and your client can get one step closer to executing on the judgment.

Considering asking a court to rescind an agreement (or being threatened with rescission)? Take a look at the Eastern Section Court of Appeals' recent opinion in Noble v. Peace. No new law here, really, but a reminder that rescission is not given lightly.

It is intended to return the parties to the positions they were in before the transaction took place. ... If the parties cannot be put in status quo, or if, due to the passage of time or other reasons, equity cannot be done, there is no ground for rescission....

The Court of Appeals vacated the trial court's grant of rescission, because a year and half of business had been conducted in the meantime. It would be extremely difficult to put the parties back to square one, so rescission was not the answer.

This logic makes it tough for a court to grant rescission in any case where there is a continuing business. Just counting on the time to file a lawsuit and obtain a judgment, there will often be too much time to send the parties on their merry way as if no deal was reached.

Click "continue reading" for a brief summary of the facts of the case.

A post over at the Construction Owners & Builders Law Blog looks at contractual limitations on damages that go too far. He talks about one case in particular that required arbitration through the American Arbitration Association, while limiting the damages below the AAA's fees. On a similar note, the Supreme Court of California ruled this week that an arbitration agreement could not prohibit a class action suit if the agreement was used to cheat a large number of consumers out of small amounts of money. (Read about it here, but if you're interested in the details look to 2005 WL 1500866.)

Any contractual limitation on damages must have a "bend, don't break" component to it. If the limitation favors one side too heavily (particularly the drafter) or effectively allows one party to breach without consequence (again, particularly the drafter), then there's a good shot at contesting its enforceability.

The implied covenant of good faith and fair dealing can take a fairly straightforward contract and turn it on its head. The Eighth Circuit Court of Appeals recently reined the duty of good faith and fair dealing in a bit, however. According to the Eighth Circuit, the implied covenant will not create any new substantive obligations. Instead, it merely “prevents one party from using technical compliance with a contract as a shield from liability when that party is acting for a purpose contrary to that for which the contract was made.”

This is still a very subtle distinction, and leaves a lot of room for debate. The facts of the Eighth Circuit case shed a little more light on what the court meant:

The contract in Mid-America Real Estate Co. v. Iowa Realty Co., Inc. was between two real estate brokers. The plaintiff licensed the use of the defendant’s real estate listing database. Under the terms of the agreement, the plaintiff and defendant also agreed to share every listing entered by either broker into the database. The plaintiff sought an injunction to compel the defendant to enter all of the defendant’s listings in the database, rather than keep some listings for the defendant’s own private use. The Court of Appeals dissolved an injunction granted by the District Court. The contract language only required the defendant to share the listings it had actually entered. The Court of Appeals ruled that the implied covenant of good faith and fair dealing could not create the additional, substantive obligation to actually enter every listing.

This one arises from the set of the Sopranos. An aspiring writer, who also happened to be a New Jersey prosecutor, claimed that he contributed to the development of a number of themes and plot lines that ended up on the HBO television show. When the Sopranos hit big, the writer sought repayment. The Third Circuit Court of Appeals ruled that, assuming that the parties formed an oral agreement, it was simply too vague to enforce. Although the Court remanded the case on a quantum meruit theory, this one looks like it's already sleeping with the fishes.

Say two businesses agree to do business with each other, but to hold off on the specifics until they get the accountants and lawyers involved to do the dirty work. Later, one business balks on closing the deal. Does the spurned business have a remedy? That depends...

Tennessee contract law has not reached the point of delineating multiple types of preliminary agreements – or agreements to enter a more formal written contract at a later date. New York law, however, recognizes two types. The Eighth Circuit Court of Appeals provides a succinct summary of the two types in Fairbrook Leasing, Inc. v. Mesaba Aviation :

The first, (“Type I”), arises when the parties agree on “all the points that require negotiation” and is preliminary only as to form. The parties have the right to demand performance of the transaction. The second, (“Type II”), establishes a framework for agreement, and binds the parties to negotiate in good faith within that framework. The parties are free to walk away once they have “made a good faith effort to close the deal and have not insisted on conditions that do not conform to the preliminary writing.”

In an unpublished 2002 decision, Kandel v. Center for Urological Treatment and Research P.C., the Tennessee Court of Appeals declined the opportunity to decide whether a cause of action would exist in Tennessee for a breach of a duty to negotiate in good faith, saying that the facts of the case did not qualify as a breach even if the duty existed.

On its face, the Court of Appeals’ ruling in Kyle v. Williams seems limited to the specific circumstances of the case. Looking deeper, though, the opinion may be applicable to other situations where, because of legislative or judicial action, one party is not entitled to recover the full terms of a contract. The opposing party’s claim would be neither barred nor reduced, despite the possible lack of mutuality.

Buyer agreed to purchase forty thousand pounds of pork back ribs from seller. When buyer’s agent signed for the ribs from seller’s agent, the rib containers were sealed but the buyer’s agent noted they were in apparent good order. After they were delivered and opened, the USDA inspector noted many “putrid, green, slimy ribs,” and condemned the entire shipment. The buyer, apparently less than enthused about eating forty thousand pounds of slimy green ribs, refused to pay, and the seller filed suit.
The Seventh Circuit Court of Appeals held that the burden of proof was on the buyer to prove nonconformity as an affirmative defense, rather than on the seller to prove conformity as part of the seller’s case-in-chief for breach of contract. The Court applied the United Nations Convention on Contracts for the International Sale of Goods, but by analogy noted the result would be the same under UCC Article 2. Look for the case, Chicago Prime Packers, Inc. v. Northram Food Trading Co., here.

The Court of Appeals for the Middle Section of Tennessee’s opinion in Citadel Investments, Inc. v. White Fox Inc. may provide a good citation for future litigants dealing with the parol evidence rule.
A trial court’s conclusion that an agreement is unambiguous is a conclusion of law, not fact, so no presumption of correctness attaches. Since the Court of Appeals disagreed with the trial court and ruled that the contract was ambiguous, parol evidence should have been admissible to explain the parties’ intent at the time they entered the contract. In this case, the defendants should have been allowed to introduce evidence that a paragraph was removed from an earlier draft of the contract at issue, and testimony regarding the reason the paragraph was removed. Evidence that the parties did not want the paragraph included in the agreement could have assisted the defendants in explaining the parties’ intent. According to the defendants, the intent was to avoid personally guaranteeing any corporate debts.