Articles Posted in Real Estate Litigation

In a recent case, the Court of Appeals of Tennessee was asked by a terminated employee (“Employee”) to rule that an agreement to arbitrate in his employment contract (Employment Agreement”) was not enforceable because arbitration would be too expensive.  The court disagreed with the Employee, and affirmed the order of the trial court which mandated that the Employee’s claims be submitted to arbitration in conformance with the rules of the American Arbitration Association (“AAA”).

In the case, Trigg v. Little Six Corporation, the Employee was a well-educated, highly paid, top level employee.  In exchange for signing the Employment Agreement and releasing Employer from any claims he had against it under a previous employment agreement, the Employer had paid Employee over one and a half million dollars.  As well, although the Employee was defined as an “at will” employee in the Employment Agreement, it also provided that Employee would receive a payment of $50,000 in the event his employment was terminated without cause.

The Employment Agreement mandated that any dispute be resolved by a three member arbitration panel.  It also provided that the expenses of arbitration be paid equally by the parties.

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In Tennessee, contracts may be modified after they are made and after the parties have begun performing.  In fact, it happens all of the time. Tennessee law allows the modification of contracts, and a modified contract is as effective as the original contract.  Many Tennessee breach of contract cases result from the alleged breach of a term that was not a part of the parties’ original written contract, but which was allegedly agreed upon after the original contract was made.

A modification of a contract is defined as a change to one or more terms of the contract which adds something to the contract or which nullifies some part of the contract.  When a contract is modified, its general purpose and intent are left intact.  Technically, under Tennessee law, a modification creates a new contract, but the original terms which were not changed or nullified remain in effect.

To prove a modification, there has to be evidence sufficient to establish that both parties assented to the modification.  Under Tennessee law, a contract may be modified by verbal agreement or by written agreement.  Moreover, and very significantly, a contract may be modified by a course of conduct on the part of the parties. In other words, mutual assent can be found in the conduct of the parties alone.  Even more significantly, under Tennessee law, a contract may be orally modified or modified by a course of conduct even where the parties have agreed, in writing no less, to a clause that specifically says that the contract may only be modified by a writing signed by both parties.

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Tennessee follows the “American Rule” which holds that the losing party in a lawsuit is not required to pay the attorney’s fees of the wining party. There are exceptions to the American Rule which come up quite often in Tennessee cases. First, if a statute provides that the prevailing party is entitled to an award of attorney’s fees against the non-prevailing party, then the prevailing party may recover its attorney’s fees. There are quite a few Tennessee statutes and federal statutes under which a winning party might be able to recover its attorney’s fees.

The second exception to the American Rule occurs when parties agree in a contract to a provision that permits the award of attorney’s fees. These types of contractual provisions are prevalent. Although the language used in contracts to nullify the American Rule varies, it is common for them to have language which provides that the “prevailing party” in any legal action between the parties is entitled to an award of attorney’s fees and expenses.

So, what makes a party a “prevailing party” under such contract language? In cases where one party prevails on each and every claim asserted in the action, the answer is pretty simple — that party is the prevailing party. Tennessee lawyers who handle commercial and real estate cases know that many cases end with both parties winning some claims and losing some claims. Who is the prevailing party in those kinds of cases?

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In Tennessee breach of contract cases, the defense of unilateral mistake falls in the category of legal defenses (and claims) that are fairly often asserted, but rarely successful. Nevertheless, for lawyers who handle breach of contract cases in Tennessee, this is a defense that, in some cases, can be outcome determinative.

Tennessee contract law recognizes two categories of mistakes as defenses to breach of contract claims: (1) Mutual mistakes; and (2) unilateral mistakes. The defense of mutual mistake applies when both parties are mistaken as to a fact material to the contract. The unilateral mistake defense applies when only the party invoking the defense was mistaken.
Both defenses, mutual mistake and unilateral mistake, apply only to mistakes about facts that existed at the time the parties’ contract was formed. In situations where facts arise after the formation of the contract that a party believes may excuse it from performance of its obligations, that party should look to the doctrines of impracticability and frustration of purpose, but not to mistake.

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Tennessee recognizes both a statutory and a common law cause of action for intentional interference with contract, also sometimes called procurement of breach of contract or tortious interference with contract. The statutory cause of action is found at Tenn. Code Ann. §47-50-109.

To say that the public policy of Tennessee frowns on parties who interfere with the contracts of others is probably putting it mildly. A party who wins an intentional interference with contract case is entitled to the pretty rare remedy of treble damages (three times the damages which it would receive just for its breach of contract case). Tennessee business owners should have more than a passing knowledge of this tort as, in the heat of competition, what might seem like just a savvy move to obtain new business or a new employee might cause a lawsuit.

A useful way to consider how to try and stay out of the crosshairs of an intentional interference with contract case is to consider what a plaintiff must prove to win a lawsuit for intentional interference with contract in Tennessee:

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