Tennessee Supreme Court provides deep analysis on elements of “novation”

The Tennessee Supreme Court issued a new opinion today, which is notable for a few different reasons.

First, it discusses a legal dispute over The Braxton, which was a luxury high-rise condo building in Ashland City, Tennessee, and which is considered by some to be one of the first big development “fails” of Great Recession Nashville.

Second, the case provides a comprehensive analysis of the law on novation.

The case is TWB Architects, Inc. v.  The Braxton, LLC  No. M2017-00423-SC-R11-CV (Tenn., July 22, 2019).

At its most basic, “novation” is when a party substitutes a new obligation for an existing obligation, such that, after the novation, the second obligation is the only legally binding remaining obligation.

This comes up sometimes in lawsuits, where a party has a claim against another for fraud, and the other party enters into a “promissory note” to repay the monetary value of the fraud claim. In the end, the fraud claim is said to have been “replaced” by a breach of contract claim.

This is important in Bankruptcy Court, where a claim for fraud is not dischargeable but, say, a breach of contract claim is.

In this new case, it’s relevant because an architect who provided design services (which were lien-able under the Tennessee mechanic’s lien statutes) agreed to accept a deed of a penthouse at The Braxton to satisfy his unpaid invoices.

TL;DR: The conveyance never occurred, and the architect then sued for breach of contract and to enforce his mechanic’s lien.

A critical issue, then, is whether the architect waived his lien claims by novation and, as a result, only has a claim for breach of a sale of property  contract?

The Supreme Court suggested that novation may apply and remanded back to the trial court.

So, after nearly 11 years, The Braxton may not just be known as the tallest building in Cheatham County…it may be known for having the longest lawsuit.

 

 

 

Author: David

I am a creditors rights attorney with Bone McAllester Norton PLLC in Nashville, Tennessee.

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