Tag: breach of contract

Tennessee courts will not save a party from its own contract: Liquidated Damages provisions will usually be upheld

When a tenant under a long term lease defaults, you’ll remember that the landlord can’t automatically sue for the entire balance due over the remaining contract. Instead, the landlord has to mitigate its damages, generally by trying to find a replacement tenant to take over the empty space.

But, what about other types of long-term service contracts? Is the service-provider entitled to compensation for both past-due amounts and future contract payments coming due, regardless of whether they can find a “replacement” customer?

This exact issue is presented in three new lawsuits that were filed in mid-December in Davidson County. In the lawsuits, a commercial linen company (i.e. napkins, aprons, bar towels, mats, etc.) sued three Nashville restaurants for breach of the linen rental agreement. In all, the actual past due amount wasn’t that much–instead, the lions share of the requested judgment was for damages for the remaining months of the contract, which this particular agreement. Under this agreement, the provider could recover “60% of the weekly service charge for the unexpired term” as its future damages.

For instance, in the lawsuit against Woolworths on 5th, the restaurant had an actual overdue balance of just $1,430.11. But, after applying the damages clause, the rental company is asking for a total of $77,440.60, which includes 60% of the not-yet-due amounts owed over the 60 month service agreement.

This seems a bit unfair, right?

These types of damages are known as “liquidated damages.” When the actual amount of damages under a contract are uncertain and difficult to calculate, these provisions are agreed to by the parties at the time the contract is signed to provide certainty and establish a method for calculating those damages.

With real estate, it’s really easy to calculate damages —how long was the property vacant after the breach? With longer-term service contracts, it’s more difficult–what expenses and costs did the service provider not incur by not having to provide the linen?

In Tennessee, a liquidated damages clause will be generally be allowed unless the challenging party proves that the provision is really just a penalty and/or designed to punish the breaching party. Tennessee law does not favor penalties, and, if it’s a close call, Tennessee Courts will be inclined to disallow the penalty. Testerman v. Home Beneficial Life Insurance Co., 524 S.W.2d 664 (Tenn.App.1974). In short, a liquidated damages provision should be somewhat reasonable in relation to the possible injury suffered and not unconscionable or excessive.

More recent Tennessee cases tend to favor allowing parties to a contract the freedom to agree to whatever business deal they want, even it’s an awful deal with a fairly onerous damages provision. See Guiliano v. Cleo, Inc., 995 S.W.2d 88, 101 (Tenn.,1999). “‘The bargain may be an unfortunate one for the delinquent party, [but] it is not the duty of courts of common law to relieve parties from the consequences of their own improvidence.’” Id.

This will be interesting to watch. Sure, damages at 60% of the remaining term sounds really high, but maybe that’s representative of the expected profits in the linen rental industry. If it’s close, a Tennessee court will allow this.

New Associates: These recent Tennessee Appellate Opinions can save you some research time.

Over the past few weeks, the Tennessee appellate courts have issued some really useful opinions on creditor-specific issues of law.

As you’ll remember from this post (from 2013!), these opinions have great recaps of the law and can save valuable research time. I’ve literally been sitting at counsel table, furiously researching this site for a citation (this one, about slow pay motions. And also this one about Rule 69.02.)

Some quick hits from the past week:

Statute of Limitations; when a breach of contract cause of action accrues; and the standard of review for a 12.02(6) motion. This case from yesterday, In re Estate of Donald Cowan, No. M2019-01597-COA-R3-CV (Tenn. Ct. App. Aug. 25, 2020) has a great statement of the law on statutes of limitation, when the clock starts ticking on a claim, and a good recap of the standards in granting a motion to dismiss for failure to state a claim upon which relief can be granted under Tennessee Rule of Civil Procedure 12.02(6).

It’s a well written opinion, and a litigant with those issues can literally cut and paste those sections into a brief.

Motions to Intervene under Tenn. Riv. Civ. P. 24. Regions Bank v. The Blumberg Trust, et. al., No. E202000051COAR3CV, 2020 WL 4919783 (Tenn. Ct. App. Aug. 21, 2020). This opinion, issued on Friday, has a great summary of the statutes and case law on Intervention as of Right and Permissive Intervention in Tennessee under Rule 24.

In that case, the party seeking to intervene was an assignee of the debt and was really only trying to substitute itself as a party, so it’s strange that intervention was even an issue.

In an even stranger twist, the prevailing party (appellee) most definitely submitted the Order Denying the Motion, and the submitted (and entered) trial court order was entirely devoid of factual or legal analysis. As a result, the Court of Appeals refused to rule on the issues on appeal and remanded the case for further proceedings.

My question is this: It was clearly a deficient bare-bones trial court order, but doesn’t the appellant share the responsibility of curating the record? Shouldn’t the appellant have submitted a competing order that had enough substantive details to properly present the issue on appeal?

Just a strange case.

Prejudgment Interest under Tenn. Code Ann. § 47-14-123. The Court of Appeals revisited the case of 101 Constr. Co. v. Hammet, No. M201801321COAR3CV, 2019 WL 5606610, at *7 (Tenn. Ct. App. Oct. 30, 2019), appeal denied (Mar. 26, 2020), and I can’t tell exactly why, but I appreciated the reminder about this case’s very detailed lesson about the importance of detailed communication in legal fee arrangements.

Also, it has a nearly “cut and paste” perfect discussion of the standards in Tennessee for awarding prejudgment interest under Tenn. Code Ann. § 47-14-123.

Spoiler: Tennessee Courts should always be awarding pre-judgment interest.

Elements to Determine Value of Damages under Quantum Meruit Claims (and who can testify). This is an issue that doesn’t show up in appellate cases often: what type of proof is required to establish the amount of damages in a quantum meruit claim.

The Court of Appeals provided a really good road map last Tuesday, in Blount Mem’l Hosp. v. Glasgow, No. E201900776COAR3CV, 2020 WL 4809951, at *2 (Tenn. Ct. App. Aug. 18, 2020).

The Plaintiff had an awful contract, so it had to rely on unjust enrichment/quantum meruit to recover the value of the hospital services provided to the Defendant. The Plaintiff presented proof from the “hospital’s financial representative” (not a doctor or service provider) that “she was familiar with the customary charges in the medical industry and that the hospital’s charges for the services were reasonable and customary.”

This knowledge wasn’t gleaned from a survey of the industry or by first hand knowledge of what other hospitals were charging; instead, it was based solely on what Medicare allowed hospitals to pay. (As an added note, though, the Court mentioned that the mere fact that “this is what the hospital usually charges” isn’t good enough proof.)

But, because the proof presented, i.e. that the “medical services were comparable to all hospitals in the area that accepted Medicare patients…,” was presented by a “hospital representative who is familiar with what is reasonable and customary,” the Court found that it was “sufficient to make [a] prima facie case for the reasonable value of the services rendered.” Id. at *3.

Keep this case for those situations where your witness is the controller / bookkeeper, but has no idea how to perform the underlying services. This comes up alot.

Last One: Setting Aside a Judgment Under Rule 60.03. Reese v. Amari, No. M201900329COAR3CV, 2020 WL 4342734 (Tenn. Ct. App. July 28, 2020).

This one is really interesting. A judgment debtor attacked a decades old judgment, arguing that it was a default judgment.

In denying the attack, the Court noted that, even though it was called a “default” judgment, the trial court actually entered the judgment at a trial, which the defendant didn’t attend. So, it wasn’t technically a default judgment, as that is defined under Tenn. R. Civ. P. 55, and wasn’t entitled to the more generous standards to set aside default judgments.

Separately, though, Judge Dinkins’ opinion has a very precise presentation of when a court will set aside a final judgment under Rule 60.02(3).

And, new associates, this comes up far more than you’d imagine.

Quantum Meruit: How You (Sort of) Sue for Breach of Contract in Tennessee, When There’s No Written Contract

When you’re buying, selling, lending, or anything else in between, take the time to prepare a written agreement, spelling out the terms of what you’re agreeing to do and of what the other side is agreeing to do in exchange.  Get it in writing and get it signed.

Everybody knows this, but, regardless, sometimes you don’t get it in writing. Maybe the deal is rushed. Maybe you think it’s such a clean transaction that it doesn’t need to be complicated by a written agreement. (By the way, this advice applies for lawyers and engagement letters–oh boy, have I learned that lesson.)

Where there’s not a written agreement, you don’t have a “contract” claim against the other side; you have what is called a “quasi-contract” claim. Instead of suing under a contract, you’re suing under equity–it’s not fair for the other side to benefit from your performance.

The theory is referred to as “quantum meruit” or “unjust enrichment.” The Tennessee Court of Appeals very recently revisited the elements of a Tennessee quantum meruit claim. The Court stated:

Under a quantum meruit theory, a party may recover the reasonable value of goods and services provided to another if it demonstrates that:

(1) There is no existing, enforceable contract between the parties covering the same subject matter;

(2) The party seeking recovery proves that it provided valuable goods or services;

(3) The party to be charged received the goods or services;

(4) The circumstances indicate that the parties to the transaction should have reasonably understood that the person providing the goods or services expected to be compensated; and

(5) The circumstances demonstrate that it would be unjust for a party to retain the goods or services without payment.

In the end, even without a written agreement, equity will dictate that a party should recover the value of the goods or services from a non-paying party.

Because there’s no contract, however, you lose the typical “contract” protections, like attorney fees, interest, and, frankly, the certainty of being in control over the terms of your deal. Take the time on the front end to document your deals; as a result, you’ll save time and money on the back end, arguing over what each party claims the terms of the deal were.