Mutual Mistake Doctrine in Tennessee Not Applicable when Contract Allocates Risk of Mistake to Party Seeking Rescission of Contract

A recent Tennessee Court of Appeals decision, Gibbs v. Gilleland, 2016 WL 792418 (Tenn. Ct. App. 2016) dealt with a situation where both the buyer and seller were not aware that the lot sold in the real estate transaction was not appropriate for the construction of a house.  The Tennessee Court of Appeals found that a mutual mistake existed because both parties to the contract were unaware that the fundamental reason for the purchase, to build a house, was faulty.  A “mistake” in the contract exists under Tennessee law when “a person acting on erroneous conviction of law or fact, executes an instrument he or she would not have executed but for the erroneous conviction” citing Pugh’s Lawn Landscape Co. Inc. v. Jaycon, Dev. Corp., 320 S.W.3d 252, 261 (Tenn. 2010).  The Court noted that in order for relief to be granted on the basis of a mutual mistake, the mistake must have been: (1) mutual or fraudulent; (2) material to the transaction; (3) not due to the complainant’s negligence; and (4) the complainant must show injury.” citing Robinson v. Brooks, 577 S.W.2d 207, 209 (Tenn. Ct. App. 1978). 

In this Gibbs case at issue, the court found there was a mutual mistake that met the requirements for relief to be granted under Tennessee law.  However, the key issue in this case is whether the mutual mistake is enforceable when the contract actually provides an allocation of risk for mistake.  This is basically a provision in the contract that shifts the risk to one party for any mistakes.  The Court found that “rescission of a contract on the basis of mutual mistake is not available when the contract at issue allocates that risk of mistakes the party seeking rescission.” citing Atkins v. Kirkpatrick, 823 S.W.2d 547, 553 (Tenn. Ct. App. 1991).  Within the contract in this case under subsection 7 it provided that “Closing of this sale constitutes acceptance of Property in its condition as of the time of closing, unless otherwise noted in writing.”  The Court of Appeals found that this specific language “unambiguously shifts the risk of fault concerning the condition of the property to Buyers at closing.” Gibbs at 9.  As a result, the Court found that the buyers were not entitled to rescind the contract under the mutual mistake theory. 

2015 Tennessee Legislature Expands Real Estate Sale Disclosure Requirements to Include Sink Holes

Tennessee has long required certain disclosures when a residential property is sold.  Some of these disclosures are found in T.C.A. § 66-5-201 et. al. The 2015 Tennessee legislature has now added the additional requirement that all sellers of residential real property disclose the presence of any known sink hole on the property.  See Public Chapter 262.  This must be done in writing and prior to entering into a contract with the purchaser of the property.  Under the statute, the term “sink hole” is defined as follows: 

(2) For purposes of this section, “sinkhole”:

(A) Means a subterranean void created by the dissolution of limestone or dolostone strata resulting from groundwater erosion, causing a surface subsidence of soil, sediment, or rock; and

(B) Is indicated through the contour lines on the property's recorded plat map.

This new statute went into effect on July 1, 2015 and takes effect for all contracts entered into on or after that date.  This new statute is found in TCA § 66-5-212.  As a result, it is important for sellers of real property to inform purchasers of sink holes on their property.  If the seller of real property does not make this disclosure (as well as other required disclosures) the purchaser has certain remedies under Tennessee law.  Specifically, TCA § 66-5-208(a) provides as follows:

(a) The purchaser's remedies for an owner's misrepresentation on a residential property disclosure statement shall be either:

(1) An action for actual damages suffered as a result of defects existing in the property as of the date of execution of the real estate purchase contract; provided, that the owner has actually presented to a purchaser the disclosure statement required by this part, and of which the purchaser was not aware at the earlier of closing or occupancy by the purchaser, in the event of a sale, or occupancy in the event of a lease with the option to purchase. Any action brought under this subsection (a) shall be commenced within one (1) year from the date the purchaser received...

How Are Damages to Real Property Calculated Under Tennessee Law?

Sometimes I like to write about specific issues that have come up in my own law practice.  When I confront certain issues, I assume there are other attorneys and individuals who deal with the same concerns.  One of those issues I recently addressed is how damages are calculated when there is damage to real property.  Tennessee courts have been fairly consistent on this subject over the years.  The Tennessee Court of Appeals’ decision of Fuller v. Orkin, 545 S.W.2d 103 (Tenn. Ct. App. 1975), discussed the appropriate measure of damages for real property as follows: 

[T]he measure of damages for injury to real estate is the difference between the reasonable market value of the premises immediately prior to and immediately after injury but if the reasonable cost of repairing the injury is less than the depreciation in value, the cost of repair is the lawful measure of damages.  Of course, the trier of fact can also take into consideration the reasonable cost of restoring the property to its former condition in arriving at the difference in value immediately before and after the injury to the premises.

Another resource Tennessee attorneys use on these kinds of issues are the Tennessee Pattern Jury Instructions.  These are the instructions that most Tennessee judges use to advise the jurors of the law in a case.  The current 2014 Tennessee Pattern Jury Instruction on this specific issue provides as follows:

T.P.I.—CIVIL 14.45 Damage to Real Property

The measure of damage to real property is the lesser of the following amounts:

1 The reasonable cost of repairing the damage to the property; or

Tennessee Court of Appeals Finds Planting Trees that Block View of Golf Course is Not a Nuisance

The Tennessee Court of Appeals recently decided whether it was considered a nuisance to block a neighbor’s view of a golf course with trees.  The case of Stibler v. The Country Club, Inc., No. E2014-00743-COA-R3-CV, 2015 WL 1093638 (Tenn. Ct. App. 2015) is unique and has interesting facts.  In this situation the plaintiff filed suit against a country club that ran a golf course because the country club planted trees that blocked the plaintiff’s (who owned a neighboring property) view of the golf course.  The court first considered whether the planting of trees violated the covenants and restrictions for the subdivision.  There was nothing in the actual covenants and restrictions that were violated by the planting of these trees.  As a result, the court next turned to the issue of to whether blocking of a view to a golf course by planting trees is considered nuisance under Tennessee law.

There is no question that trees can constitute a nuisance in certain circumstances (See prior post on this issue).  In fact, the Tennessee Supreme Court has provided guidance specifically regarding trees and nuisance stating that “encroaching trees and plants may be regarded as a nuisance when they cause actual harm or pose an imminent danger of actual harm to adjoining property.”  Stibler at 4 (quoting Lane v. W. J. Curry & Sons, 92 S.W.3d 355, 364 (Tenn. 2002)). 

In the Stibler case at issue, it was undisputed that the country club planted trees on its own property and that the trees did not encroach on plaintiff’s property in any way.  Further, these trees did not cause any physical damage to the plaintiff’s property.  The sole basis for plaintiff’s claim is that there was economic damage caused to the plaintiff’s property resulting from the loss of a golf course view.  The Tennessee Court of Appeals found that losing a view of an adjacent golf course on a country club’s property due to the planting of trees is “simply insufficient to give rise to a claim for nuisance.” Stibler at 4

Can the Sale of Real Property Be Enforced When Title to Property Was Not Held By Seller at Time of Transaction, but is Later Acquired?

The Tennessee Court of Appeals’ case of Gary Atchley v. Tennessee Credit, LLC, No. M2013-00234-COA-R3-CV, 2014 WL 4629042 (Tenn. Ct. App. 2014), discussed the doctrine of “after-acquired-title” under Tennessee law.  This case is relatively straight forward.  On September 22, 2009, the plaintiff purchased from Tennessee Credit, LLC a piece of real property for $18,000.00.  At that time he signed and presented the $18,000.00 check to Tennessee Credit, LLC.  The problem was, Tennessee Credit, LLC did not actually own the property at the time of the sale.  Tennessee Credit, LLC did have the right to foreclose on the property at the time of the sale but they had not done this yet, so they did not actually own the property.  It was not until December 4, 2009 that Tennessee Credit, LLC actually owned the property.

After Tennessee Credit, LLC obtained title, the purchaser desired to rescind the transaction and demanded a refund of the $18,000.00 paid to Tennessee Credit, LLC.  This Tennessee Court of Appeals’ decision ultimately agreed that this contract could be rescinded and the $18,000.00 should be refunded to the purchaser.  The Trial Court said it best, “you can’t sell property you don’t own . . .”.  Atchley at 2.  The Appellate Court reviewed some very old Tennessee decisions from the early 1900’s and 1800’s in order to decide this case.  There has not been case law on the “after-acquired-title” doctrine at issue in this case in the last 80 years.  Tennessee Credit, LLC attempted to argue the principal of “after-acquired-title” which would allow them to enforce the transaction because they acquired the title after the transaction.  The Tennessee Court of Appeals rejected this argument and stated as follows: 

When Mr. Dunn advertised Ms. Roller's property for sale and attempted to sell the property to Mr. Atchley, he knew Tennessee Credit did not have title to the property. Like the executor in Woods, Mr. Dunn's representation that he had a right to sell Ms. Roller's property was a “species of fraud.” Therefore, in keeping with the principles announced in Woods, we do not believe Mr. Atchley should be compelled to take the after-acquired-title from Tennessee C...

Tennessee Boundary Line Disputes – 20 Years of Property Tax Payments can Create Presumption of Legal Ownership of Land

Analysis:  The recent Tennessee Court of Appeals decision, John R. Conder v. William Salyers, No. W2012-00963-COA-R3-CV (Tenn. Ct. App. 2013), discussed an important presumption that can be used in a boundary line dispute cases.  The Conder case involved a boundary line dispute where both sides submitted expert proof from surveyors that supported the respective positions of each party.  One of the important deciding factors in the case, however, was T.C.A. § 28-2-109 which provides a presumption of ownership when a person who has an interest in real estate pays the property taxes for greater than 20 years.  Specifically, T.C.A. § 28-2-109 provides as follows:

Any person holding any real estate or land of any kind, or any legal or equitable interest therein, who has paid, or who and those through whom such person claims have paid, the state and county taxes on the same for more then twenty (20) years continuously prior to the date when any question arises in any of the courts of this state concerning the same, and who has had or who and those through whom such person claims have had, such person's deed, conveyance, grant or other assurance of title recorded in the register's office of the county in which the land lies, for such period of more than twenty (20) years, shall be presumed prima facie to be the legal owner of such land.

In Conder, the Tennessee Court of Appeals noted that for a party to create a rebuttable presumption of ownership under T.C.A. § 28-2-109 the party must show that “(1) he or she has a legal or equitable interest in the property; and (2) that he or she has paid taxes on the disputed property to the exclusion of any other party for twenty years.”  This rebuttable presumption can...

Premises Liability Law – In Tennessee if a healthy tree falls on a neighbor’s property and does damage, is the tree owner responsible for this damage?

Brief Summary:  The short answer is that in Tennessee a homeowner is generally not responsible for damage caused by their healthy tree that falls onto the property of another and causes damage.  The only time the premises owner could be responsible is if the tree is causing a nuisance or encroaching on the neighbor’s property.

Analysis:  The Tennessee Court of Appeals decided a recent case on a commonly asked question under Tennessee law.  The question is basically whether a homeowner is responsible if one of their live, healthy trees falls onto their neighbor’s property and does damage.  The Tennessee Court of Appeals in Cindy Russell v. Gene Claridy, 2013 WL 655235, No. M2012-01054-COA-R3-CV (Tenn. Ct. App. February 20, 2013) discussed a situation where a live healthy tree fell from the defendant’s property onto the plaintiff’s property, landing on the plaintiff’s van and causing damage of approximately $8,810.00.  In this matter the plaintiff had actually contacted the defendant some years prior regarding concerns about the tree however the defendant did not see any problems with the tree because it was healthy and basically on pasture land.  As a result, the defendant did not remove the tree.

The trial court ultimately found the tree fell due to an “act of God” and therefore the defendant was not liable for damages to the van.  There was no evidence presented to the court that the tree was unhealthy, was likely to fall or that the defendant had any notice of any likelihood of the tree falling.

On appeal, the plaintiff asserted this tree should still be constituted a nuisance because of the threat to the plaintiff’s property.  The court did note there are other Tennessee decisions which find that encroaching trees onto another person’s property that “adversely affected the plaintiff’s reasonable and ordinary use and occupation of her home, not to mention posing hazards to the plaintiff’s health and safety,” can constitute a nuisance under Tennessee law.  Russell at 3 (citing Lane v. W. J. Curry and Sons, 92 S.W.3d 355, 363...

Tennessee Consumer Protection Act - Does the Tennessee Consumer Protection Act apply to claims derived from deceptive conduct in foreclosure proceedings?

Brief Summary:  The Tennessee Consumer Protection Act (also “TCPA”) does not provide the basis for a claim under the TCPA for deceptive conduct in a foreclosure proceeding.

Analysis:  The Tennessee Court of Appeals in David Paczko v. SunTrust Mortgages, Inc., No. M2011-02528-COA-R3-CV, 2012 WL 4450896 (Tenn. Ct. App. September 25, 2012) discussed whether allegedly deceptive foreclosure conduct can form the basis for a Tennessee Consumer Protection Act claim.  In this case the plaintiff alleged claims against SunTrust Mortgage, Inc. for instituting a foreclosure against the plaintiffs with knowledge that they did not have any rights, titles, or interest in the property in question.  Paczko at 2.

The trial court dismissed plaintiff's Tennessee Consumer Protection Act claim for failure to state a claim upon which relief can be granted under Tennessee Rule of Civil Procedure 12.02(6).  The Tennessee Court of Appeals affirmed this decision and found the Tennessee Consumer Protection Act "does not apply to allegedly deceptive conduct in foreclosure proceedings."  Paczko at 2. (citing Gibson v. Mortgage Elec. Registration Sys., Inc., 2011 WL 3608538 at *5 (W.D. Tenn. August 16, 2011)). 

The court relied upon the reasoning in the Tennessee Supreme Court's decision in Pursell v. First American National Bank, 937 S.W.2d 838 (Tenn. 1996) to support this decision.  In that case the Tennessee Supreme Court found: 

The TCPA did not create a cause of action for deceptive repossession procedures because the actions of a bank and its agent in carrying out a repossession “did not affect the ‘advertising, offering for sale, lease or rental, or distribution of any goods, services, or property, tangible or intangible, real, personal, or mixed, and other articles, commodities, or things of value wherever situated.

In the

Statute of Limitations - When does the doctrine of fraudulent concealment extend the statute of limitations under Tennessee law?

Analysis:  The recent Tennessee Court of Appeals decision of Alisa Leigh Eldrige v. Lee Savage, No. M2012-00973-COA-R3-CV, 2012 WL 6757941 (Tenn. Ct. App. December 28, 2012) discussed when fraudulent concealment can extend the statute of limitations for a cause of action.  This case concerned an allegation that the seller of a home fraudulently concealed fire damage in the sale of the home to the plaintiff purchaser. Eldrige at 1, 2.  The plaintiff alleged the defendant negligently or intentionally misrepresented the fire damage by making false statements of fact about the extent of the damage and subsequent repairs made to the home. Eldrige at 2.  The original sale transaction of the home occurred in 1994 and the lawsuit was not brought until 2010. Eldrige at 1.  The plaintiff asserted she did not discover the extensive fire damage until 2010. Eldrige at 1.

One of the questions in this case was whether the doctrine of “fraudulent concealment” applied to toll the statute of limitations. Eldrige at 2.  Generally, the doctrine of fraudulent concealment applies "to circumstances in which the defendant purposefully engages in conduct intended to conceal the plaintiff's injury from the plaintiff."  Eldrige at 4.  The Tennessee Court of Appeals found that a plaintiff who invokes the doctrine of fraudulent concealment must allege and prove four specific elements as follows:

(1) that the defendant affirmatively concealed the plaintiff's injury or the identity of the wrongdoer or failed to disclose material facts regarding the injury or the wrongdoer despite a duty to do so;

(2) that the plaintiff could not have discovered the injury or the identity of the wrongdoer despite reasonable care and diligence;

(3) that the defendant knew that the plaintiff had been injured and the identity of the wrongdoer; and

(4) that the defendant concealed material information from the plaintiff by withholding information or making use of some device to mislead the plaintiff in order to exclude suspicion or prevent inquiry.

Eldrige at 4

Real Estate Law - What is required to establish a slander of title claim under Tennessee Law?

Analysis:  The Tennessee Court of Appeals in David Paczko v. SunTrust Mortgages, Inc., No. M2011-02528-COA-R3-CV, 2012 WL 4450896 (Tenn. Ct. App. September 25, 2012) discussed the requirements for a slander of title claim as well as the related claim to quiet title.  This case involved a dispute over the plaintiff’s property that was foreclosed against by the defendants.  The plaintiff sought to enjoin the bank from going forward with the foreclosure proceeding and to clear the title. Paczko at 1. 

The court found that in order to be successful with a claim for slander of title, the plaintiff must establish the following:

(1) that the [plaintiff] has an interest in the property, (2) that the defendant published false statements about the title to the property, (3) that the defendant was acting maliciously, and (4) that the false statements proximately caused the plaintiff a pecuniary loss.

Paczko at 3.  (citing Brooks v. Lambert, 15 S.W.3d 482, 484 (Tenn. Ct. App. 1999)).  The court further noted that in order to bring an action to quiet title, the plaintiff must “have an interest in the property at issue."  Once the interest in the property ceases, the plaintiff no longer has a justiciable claim for an action to quiet title. Paczko at 3.

In this case the court found that because the plaintiffs acknowledged the property was foreclosed upon and sold during the pendency of the lawsuit and they were not seeking to recover the property, they no longer had an interest in the property. Paczko at 3.  The fact the case was justiciable and able to be decide...